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    EC Advises of Need to End National Approach to Energy

Summary

The challenges that face the European Union’s electricity market require a complete overhaul of the role of governments and regulators

by: William Powell

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EC Advises of Need to End National Approach to Energy

The challenges that face the European Union’s electricity market require a complete overhaul of the role of governments and regulators, the European Union’s energy commissioner Miguel Arias Canete told the European Electricity Forum in Florence March 3.

In a speech that called for an end to protectionism and national self-interest in energy markets in favour of integration, he said that the Agency for Cooperation of Energy Regulators might have to arrogate to itself powers that now lie with national regulators, which are often subordinate to their governments.

In order to bulldozer through the sort of changes that are needed if the EU is to meet the ambitious COP21 commitments to decarbonise, the EC “cannot wait for 28 national regulators to come to an agreement, or fail to do so,” he said.

He said many countries had incentives to ensure generation adequacy that followed a “purely national logic and focus exclusively on introducing measures to remunerate national generation capacities, without taking account of the benefits of market integration.”

This is not a viable approach, he said, and to avoid distorting the internal energy market the EC will propose a European or regional framework for capacity remuneration mechanisms.

While market successes include more cross-border flows and more rapid trading, there have also been notable failures, such as the low cost of emissions trading allowances, and an inability to absorb the “massive roll-out” of variable renewable generation, he said. Renewables will have to take on their own responsibilities for balancing the system and in turn help strengthen the price signal.

Capacity mechanisms vary from country to country with no consideration of what is happening across political borders. “Prices need to steer investment to the right location. For this they need to reflect physical limitations in the transmission system rather than political borders,” he said, and there should be no constraints on pricing.

 “As co-operation between system operators will intensify and become more formal, Acer will need oversight over these new structures. And the same holds true for power exchanges, if they hold monopoly functions. We will need to strengthen Acer’s powers accordingly,” he said.

The EU has committed to producing half of its electricity from renewable sources by 2030 but there are obstacles in the form of depressed and sometimes capped prices for electricity and for emissions allowances.

Cutting the amount of emissions annually is one solution, although the two methods to be used will not take place until 2019, with the removal of the surplus allowances; and in 2020 with the progressive annual reduction rising from 1.74% to 2.2%, a measure that will lead to a 43% cut in the amount allowed by 2030, compared with the pre-recession total of 2005.

 

William Powell