ACER defends the design of the electricity market and warns of measures such as capping prices


The European Agency for the Cooperation of Energy Regulators (ACER) has defended this Friday maintaining the current design of the wholesale electricity market in the EU and warns of the undesired effects of applying interventionist measures, such as putting a price cap.

The entity has published its final report on the Final Evaluation of the design of the EU wholesale electricity market, in which it states that the current design of the wholesale electricity market contributes to maintaining the “efficiency” and “security” of supply of electricity and, therefore, has advocated keeping it.

The report commissioned by the European Commission on the functioning of the EU energy markets maintains that although the current circumstances affecting the functioning of the energy market are “far from normal”, for what it has judged that the design of the energy market is not responsible for the current crisis.

“On the contrary, the current market rules have helped to a certain extent to mitigate the current crisis, avoiding electricity cuts or even blackouts in certain neighborhoods,” ACER points out in its analysis, in which it adds that the electricity market has not been designed for the current “emergency” situation.

In a further step, the report requested by Brussels warns that “badly designed” emergency measures or “distorted price signals” due to intervention in the formation of market prices “could set back the integration of the electricity market in the EU and competition”, a calculation that could jeopardize the benefits achieved to date and increase the cost of the energy transition.

Specifically, regarding interventionist measures such as taxing windfall profits by setting a price limit in the electricity market, ACER warns not only that they could distort the market, especially in the medium and long term, but also that they could discourage private sector investment , influence risk perceptions, and lead to supply shortages.

“When wholesale electricity prices are regulated, for example by introducing price caps, unintended effects can arise, such as problems with securing supply,” details the final Acer report.

The European body that regulates the energy market has estimated that the benefits for consumers derived from the integration of the electricity market at a European level are around 34,000 million euros per year, derived from cross-border trade between Member States, which also facilitates the integration of renewables

In addition, given the high initial investment costs derived from the deployment of low-carbon energy production technologies, which could lead to increased price volatility in the coming years, therefore, the design of the market must send the signals of adequate prices.

The study shows that energy prices in 2022 and 2023 will tend to remain high, as a result of the current tensions and the uncertainty derived from the supply of gas to the EU.

Among its conclusions, the electricity market regulatory body has stressed that among the current challenges in the design of the electricity market are making the electricity markets work better in the short term, promoting the energy transition in the long term, increasing the flexibility of the electrical system and protect consumers from excessive volatility.

Thus, ACER includes in its report thirteen possible measures that policymakers can apply to market design, including: protecting the most vulnerable consumers against price volatility, stimulating the market to improve its long-term liquidity , accelerate the integration of the electricity market, better integrate markets or improve support for renewable investment.

In addition, the agency recommends preserving the price signal in the wholesale market and removing barriers to demand resources that provide flexibility or address inevitable supplier bankruptcies.