Article in Left Bloc re the EU's Energy Market ( usual google translate caveat)
European Union: will energy market rules finally change?
The bet of European leaders seems to continue to be to set goals for saving natural gas that do not solve fundamental problems. Marisa Matias says that the European Commission considers emergency instruments “but refuses to consider energy as a right and protect people from ineffective and dangerous market logics”.
The President of the European Commission, Ursula Von der Leyen, admitted this week that it will be necessary to carry out “an emergency intervention and structural reform” in the European energy market, with an extraordinary summit of the European Council being convened for the next 9 September. The reason for this urgency is related to energy prices, which have skyrocketed since the beginning of the war and have been a source of difficulties for most families and micro, small and medium-sized companies.
“Rising electricity prices are exposing the limitations of the current configuration of our electricity market, developed for different circumstances”, said Von der Leyen, who recognized that “we need a new model in the electricity market that really works” and he also underlined the need to “end the dependence on Russian fossil fuels”.
How does the energy market work?
The energy market works on the basis of the logic of marginal production costs. In the wholesale market, generating companies present their electricity supply and the selling price for each hour of the day, depending on the expected demand. The various offers are ordered from the lowest price to the highest, and are awarded until the demand is met. The break-even point determines the electricity bill.
Renewable energies have a very low price because they have very low operating costs and they want to ensure that their supply is sold, so the price at any given time is normally determined by other energy sources. in an
articlepublished on Esquerda.Net, Miguel Heleno, a researcher in energy systems, briefly explains what is at stake: “In the daily electricity market, what dictates the price is the last plant to be dispatched. This means that, at certain times of the day, when there is sun and wind, the dams are typically the last to be dispatched, which means that we all pay the price of electricity at the cost of hydroelectric production. However, at other times of the day, if it is necessary for any combined cycle power plant to enter the system, all electricity is paid at the price of natural gas.”
In other words, “even if there is 95% of cheap renewable production and only 5% of expensive natural gas in the system, it is the fossil fuel that dictates the price of energy”, as Miguel Heleno explains. The Russian invasion of Ukraine has accentuated this problem, as the European Union is heavily dependent on Russian fossil fuels, whose prices have soared as a result of the war and sanctions. As the market price of electricity is often dictated by gas, as explained above, bills have skyrocketed.
Background changes only in the next year
The European Commission never wanted to change the rules of this game, using the argument that the system generated greater profits for renewable energies and would encourage investment in their production, even if the market has failed in this objective.
Although the European Commission is preparing to present a proposal in the coming weeks, the substantive changes will have to be left for a later stage. The information has been
advanced by the Commission's main spokesman, Eric Mamer, who explained that the institution "is working on two different issues: an emergency intervention to alleviate some of the issues that have arisen in the energy sector in light of Russia's aggression against Ukraine and the disruptions in supplies to Europe and the effect this had on prices and in Europe, in particular on gas prices and therefore also on electricity prices, and secondly, a more structural reform of the market model of electricity”.
Some media advance the possibility for the initial proposal to include measures such as the imposition of limits on electricity prices (limiting the income of generators) and the definition of common guidelines for the taxation of extraordinary profits of large companies. The measure, defended by the Bloc despite criticism from the center and the right, had already been included in the package of instruments that the Commission recommended to European Union countries in March of this year.
However, there still does not seem to be a will to change the structure of the energy market, and decisions on this matter have already been postponed to the beginning of next year. The bet of European leaders seems to continue to be to set natural gas savings targets that do not solve the fundamental problems. For MEP Marisa Matias, “the European Commission is willing to consider emergency instruments, such as mandatory energy rationing, but refuses to consider energy as a right and to protect people from ineffective and dangerous market logics”.
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