EU Chief Acknowledges Electricity Market Needs Reform

In an about-turn, the President of the European Commission, Ursula von der Leyen, acknowledged that the EU’s electricity market “does not work anymore” and needs to be adapted to the “new realities of dominant renewables”

In an about-turn, the President of the European Commission, Ursula von der Leyen, acknowledged that the EU’s electricity market “does not work anymore” and needs to be adapted to the “new realities of dominant renewables.”

Responding to questions from the European Parliament, von der Leyen admitted that current measures to address surging energy prices had fallen short of addressing structural issues in the EU electricity market. “Indeed electricity prices – energy prices – are skyrocketing. And we are doing a lot on it,” von der Leyen said, citing the toolbox put forward by the Commission in autumn last year, which allows EU countries to tax the windfall profits made by energy firms and subsidise energy bills for the most vulnerable households and small businesses.

“But we also acknowledge that this is a short-term relief that will not change the structure of the market,” she added, saying power markets were “designed in a way like it was necessary twenty years ago” when the share of renewables was low. “Today, the market is completely different. It is the renewables that are the most cost-effective and the cheapest ones,” she explained.

Gas prices have surged to record highs since the autumn on the back of tight supplies from Russia and the economic recovery from the COVID-19 crisis – a situation now compounded by the Ukraine war. This has pushed up the price of electricity, which is driven by “marginal” production capacity available from gas power plants that can be fired up at short notice to meet peak demand.

France and Spain have led calls to reform the current marginal pricing system, with Madrid asking for “structural solutions” at the European level to decouple gas and electricity markets. They were backed by the leaders of Italy, Portugal and Greece, who urged the EU executive to address the “contagion effect” of high gas prices on the electricity market.

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