ACER, Europe’s energy regulator, today released its annual analysis of the sector. In it, the institution warns that the EU’s long-term markets present some deficiencies, such as lack of liquidity in long-term contracts and market concentration.
The report warns of the importance of long-term markets to support investment in renewable energy as they provide investors with the income certainty and price predictabilitywhich is essential to mobilize the investments necessary for the energy transition.
The 2024 report on the integration of the EU wholesale electricity market thus assesses the progress of the integration of the EU wholesale electricity market.
ACER highlights the challenges and opportunities presented by the increasing share of intermittent generation in the EU energy system, as well as the need for greater flexibility to manage price volatility and ensure security of supply.
With the growth of renewable energy, the role of fossil fuels in electrical systems is decreasing. The new generation mix is marked by a 10% increase in intermittent generation hours (production that does not adapt to short-term changes in demand) in 2023.
The report shows that the increasing proportion of intermittent generation, such as wind and solar, that cannot adjust its output to short-term changes in demand, has led to increased price volatility, with episodes of low or negative prices , as well as price spikes.
This is because this generation does not respond to market price signals, leading to a excess supply during periods of high renewable generation and low demand.
The report also highlights the importance of flexibility to manage this price volatility and ensure security of supply and warns that 27% of market design standards (methodologies, terms and conditions) suffer delays in their application.
The regulator refers to flexibility as the ability of energy resources and consumers to change or adjust their consumption or production in response to price signals or to help system operators to resolve network imbalances or congestion.
The report indicates that flexibility is essential for the energy transitionsince it allows more renewable energy to be integrated into the energy system and manage price volatility.
ACER shows that the integration of electricity balancing markets is essential to increase flexibility and reduce costs and indicates that the PICASSO platform, which allows cross-border exchange of balancing energy, has contributed to price convergence between participating countries .
However, it highlights that limited participation in these markets has restricted exchange possibilities and has caused episodes of high prices. Transport network managers only four Member States have joined the balancing platforms which came into operation in 2022 and, therefore, encourages more managers to join together to expand exchanges between zones and reduce cases of high prices.
The report concludes with a series of recommendations to improve EU electricity market integration such as fully implementing changes to market design to unlock flexibility, further integrate electricity balancing markets, improve the functioning of the markets long term and remove barriers to demand response.
For ACER, it would also be necessary to improve the quality of the data to allow a more in-depth analysis of the balancing markets.
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