In a report on EU competitiveness, Mario Draghi proposed an electricity market reform that the European Commission had previously avoided during the 2022 energy crisis. Draghi highlighted the dominance of gas price in setting electricity prices, despite renewables being a larger part of the energy mix. He criticized vested interests and financial rents in the market, hindering the transfer of cost savings from renewables to consumers.
The trade association Eurelectric expressed concerns about Draghi’s proposal for electricity suppliers to offer a portion of subsidized output to energy-intensive industries at production cost plus markup. They warned that such market interventions could deter investment in the electricity sector and create instability.
The current market system sets wholesale electricity prices based on the most expensive source in the mix, often gas-fired power plants. This can result in price spikes even when wind and solar power dominate the grid. Additionally, prices can fall below zero on days with high renewable output, leading to generators paying consumers to use excess electricity.
While reforms were agreed upon in response to the energy crisis, the fundamental pricing model remained unchanged. Draghi’s recommendations to cover renewables and nuclear power with power purchase agreements or state-backed contracts were met with caution by Eurelectric, emphasizing the need to balance market stability with investor attractiveness in the transition away from fossil fuels.
The report sheds light on the challenges and complexities of the EU electricity market, calling for a careful approach to reforms that ensure a balance between affordability for consumers, investment attractiveness, and energy sustainability.
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