Regulators oppose the reform promised by France

Regulators oppose the reform promised by France

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It is a firm position, which will upset supporters of a profound reform of the European electricity market, and those who never really digested its liberalization in 1996. First, the French government, while Economy Minister Bruno Le Maire identified this system last fall as ” abnormal in view of the rapid rise in energy prices, and categorically rejected the use of gas as a determinant of prices on the Twenty-Seven scale.

Because the European Agency for Co-operation in Energy (ACER) is surprisingly defending another line: in a long-awaited report commissioned by the Brussels executive last year, he insists on the benefits of this market. of the energy crisis. And he confirms, against the wheat of the French government, that the latter has probably contributed to mitigating the effects. For example, allowing France, hit by a historic shortage of nuclear power, to import more electricity.

And for good reason, in France, on April 4, spot prices [établis sur le marché de l’électricité par les bourses le jour J pour le lendemain] broke the ceiling to reach up to 3,000 euros per megawatt hour (MWh) compared to almost ten times less in neighboring countries! Unable to supply its own power supply due to a lack of power stations, France therefore had no choice but to import en masse, especially from Germany and England. An exceptional fact which, according to ACER, testifies to the need of the Member States to have an integrated and interconnected market.

France: this worrying shortage of electricity is forcing us to import

Sale at marginal cost

And yet, the European electricity market operates in such a way that, as a general rule, all the countries of the Old Continent are subject to more or less the same price fluctuations, regardless of their national mix. Indeed, its principle is that of selling at a marginal cost, ie that prices per MWh depend on the cost required to start the last unit called to meet demand in each Member State, especially during peak hours. However, it is generally a fossil fuel or coal-fired power plant, which will partially adjust electricity prices in the EU, regardless of their origin.

“This is due to the natural nature of electricity. It can not be stored and, from one hour to another, its price can vary greatly. “Hence the construction of this market, which must make it possible to ensure adjustments according to supply and demand at all times,” an industry expert told La Tribune.

An economic priority class that explains the misunderstanding of some, since, therefore, is, among other things, the increase in the price of hydrocarbons as a last resort that leads to an increase in all electricity prices on the continent. Including France, where, however, the individual and hydraulics, rather than fossil fuels, provide most of the supply.

However, this mechanism is not absolute: the lack of margins during peak periods, as happened in France in early April, may still cause spot prices to explode in some areas. Indeed, interconnection capabilities are technically limited to around 12 GW, even if European network operators are working to increase this percentage.

“Contrary to popular belief, there is not just one within the EU
single market, but one market per Member State. Thus, when setting the forecast for the next day, the optimal exchanges between the countries are defined, taking into account the possibilities of interconnection between the networks. If the exchanges remain below 12 GW, the prices are balanced: the same is on both sides of the border. “But if we exceed them because we demand a lot of electricity from the neighbor due to lack of production, the markets are disconnected”, explains a former senior director of EDF.

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The intervention is treated with suspicion

As a proponent of market liberalization, ACER therefore warns of government measures aimed at reducing energy prices, although they are currently reaching peaks. And he considers in his report that ” The more intrusive the approach, the greater the likelihood of market distortion “.

Such an approach could indeed restricting private sector investment» innovative low-carbon technologies required for the energy transition, say regulators.

With regard to the current state of emergency in Europe, ACER is not convinced that the reduction in electricity prices will solve the problems in the short term. On the contrary, it risks worsening them»warned Christian Zinglersen, director of ACER, referring to the measures recently adopted in Spain and Portugal.

Indeed, the two countries of the Iberian Peninsula reached an agreement with the European Commission on Tuesday to reduce the price of electricity, under a reduction regime that allows them to separate it from that of gas. It will initially reduce the price of gas used in electricity generation to 40 euros per MWh, with an average target of 50 euros over the next 12 months.

More interfaces to ensure flexibility

Although ACER opposes such an initiative, it believes that long-term improvements in the market could be needed to really support the development of renewable energy sources. And this, by creating support programs and contracts for the purchase of electricity by companies, for example.

But there is no doubt for regulators to return to the integrated model of the European market, which in turn needs to be strengthened. And for good reason, another key goal of ACER is to ensure greater flexibility of the electricity system as more intermittent renewable energy sources, such as wind and solar, are added to the electricity mix. This requires improving interconnections between countries in order to feed, for example, those who could temporarily suffer from a lack of wind production due to a lack of wind.

Research on opaque electricity supplier business