Electricity Market Reform

The highly anticipated Electricity Market Reform has entered trilateral negotiations between the European Parliament, the Commission, and the Council. The Council shared its position, the so-called “general approach” on October 19 (see, EC). Among other points, it includes a proposal for a single legal entity (SLE) to act as the market coupling operator (MCO). This is different from the current setup, in which nominated electricity market operators (NEMOs) cooperate to jointly perform the MCO function.

The NEMO Committee criticised the proposal, urging the EP, EC and the Member States to remove the idea of a single legal entity from the Market Reform package [NEMO Committee]. In a nutshell, the main arguments are centred around the decreased support for local requirements, delay of ongoing or planned projects due to such an intervention along increased operational risks due to a “single point of failure”. Such a setup might also affect the ability of a NEMO to operate local markets instead of forcing them to send all the bids to the SLE.

Find more on the Market Coupling framework in Europe and tasks of MCO/NEMOs involved in our Chapter 1 of the Market Coupling Handbook.

Among other thorny issues of the upcoming reform is Art. 66a. Specifically, it gives substantial freedom to the Commission and to the Member States to introduce ad hoc emergency measures in response to high electricity prices. Some critics of the proposed article observed that anchoring such interventions in the regulation without specifying how such interventions should be financed may exacerbate regulatory uncertainty for the market actors.

Recap on market reform

Europe began to reconsider its electricity markets after Russia’s war in Ukraine caused natural gas prices (and energy prices in general) to spike. Early drafts included major changes, but these were paired down in the agreed version in March 2023.

The cornerstones of the draft Reform include broader measures for consumer protection, especially during future price spikes as well as the introduction of additional mechanisms to spur renewable energy’s expansion. Such as contracts for differences (CfDs) and RES power purchase agreements (PPAs).

The current president of the Council (Spain) intends to finalize the trilateral negotiations before the end of the year.