Posted by: Timo Karttinen
[published originally in European Commission’s DG ENER Monthly Newsletter in September]
Despite some genuine progress the political target to have fully integrated EU internal energy market in place by 2014 has been missed. A year past the deadline we see virtually the opposite trend taking place. The rapid increase in subsidy-driven renewable electricity is challenging the electricity and carbon market, while the economic recession has pushed down the demand. The power industry is struggling with unprofitable power plants when they should be investing in new low-carbon technologies. A number of national initiatives have emerged in place of the missing market signals. Regulatory failures have been “cured” with new regulations. Capacity mechanisms and national carbon policies are examples of such development.
Against this backdrop, the electricity market design consultation launched by the Commission in mid-July is very timely, and the questions put to governments, industry and other stakeholders are to the point. The core issue is about making a choice: do we aim for a common European market driven by market signals, or do we opt for a more regulated, more fragmented and less competitive energy system?
Fortum sees clearly the value added of a common competitive European energy market. The lower societal costs afforded by an efficient market benefit consumers, energy producers and societies alike. It is crucial to study a broad range of key elements of the current internal electricity market design and how they could be further developed. There is no silver bullet that alone would solve the current challenges, not even those much-debated capacity mechanisms.
My top five “no regret” measures to improve the current market would be: 1) Increase efforts in transmission infrastructure development and go for more regional system planning and optimization; 2) Full market integration of renewable energy including small decentralized generation; 3) Enforce CO2 price steering by letting the ETS do the work in the ETS sector; 4) Allow market price to drive investments and demand-response development without artificial price caps or other restrictions; and 5) Remove regulated end-user prices in all member states and make real-time pricing an option available to consumers.