ACER’s report on wholesale electricity markets argues for the status quo despite evidence that these same markets have led to massive and unnecessary increases in electricity prices for EU citizens, writes Mike Parr.
Mike Parr is the director of REPa UK based company that provides market research and technical assistance in the field of renewable energy and energy efficiency.
ACER is part of the constellation of EU institutions that are ostensibly there to make the European Union a better place for its citizens. Given current events, it should therefore act in the interest of EU citizens by asking probing questions about markets and how they work.
the report he delivered on April 29 does neither. Markets, in ACER’s view, need little reform.
Much of the report, in fact, reads like a lobbying document for vested interests. It does not solve the key problem: how to set the wholesale price of electricity for what it actually costs to produce. But ACER explicitly rejects the idea that this is possible (Section 3.2, where it provides partial examples of why it wouldn’t work).
A growing number of people at all levels within the EU institutions are losing confidence in the ability of ACER or CEER (the Council of European Energy Regulators) to carry out the necessary energy market reforms. electricity. These concerns are shared by some Member States, such as France and others, who have clearly expressed their wish for a fundamental reform which is totally absent from the ACER report.
The report is 78 pages and it is not possible here to proceed to a page-by-page analysis. I will therefore limit this analysis to sections 3 (Design of the EU wholesale electricity market: remaining benefits and implementation challenges) and 4 (Ways to improve the EU wholesale electricity market. EU).
Section 3.1 (page 18) states: “The design of the EU electricity market is influenced both by the characteristics of electricity (for example, that it cannot be easily stored) and by broader policy goals.”
It’s debatable. Although electricity is not currently stored on a large scale, the electrical system is in the process of transitioning to a hybrid renewable energy system coupled with electrolyzers producing hydrogen which will supply, via a network of reallocated gas, the terawatt hour class storage needed for an EU energy system. system.
This is EU policy. ACER mentions hydrogen five times in the document but assumes that this energy carrier will not have a significant impact until after 2030. Furthermore, this does not correspond well with the statement on page 53, which states: “this evaluation of ACER focuses on the pros and cons of the design of the EU electricity market, particularly in terms of its ability to deliver the EU’s decarbonisation trajectory over the next 10 years. -15 years”.
Given the 2032-2037 horizon, why was hydrogen only briefly mentioned on page 32 in the context of longer-term flexibility? Given its potential as a reserve of electricity, why was it not considered an important market design influencer?
The report is riddled with contradictions and it is clear that no one has read the full report to check its consistency. On page 55, section 5.1 discusses various options for intervention in the electricity market and rejects the “division of the electricity market into separate technologies…. production quotas and prices fixed administratively for each technology”.
Section 4.2 describes the different measures used by Member States to encourage renewable energy, which define the price and the technology and indirectly the production quotas. ACER, on page 55, denies and criticizes points which they describe as facts on page 35.
The title of Section 3.2 is “Dispelling Some Myths…”, but ACER then expands on its own myths about “payment-based” versus “pay-as-clear”. He cites the example of California in 2001/2, the wholesale electricity price scandal and the attempts of the Californian authorities to remedy it.
He then fails to mention that the scandal was caused primarily by Enron and others using preposterous market manipulation. Such market manipulation sits very poorly with the ACER (& NEMO) “myth” of perfect markets requiring no reform and featuring honest and rational players.
Much of Section 3 concerns the details of cross-border trade, which represents only small amounts of the overall load. For example, between the Iberian Peninsula and France, electricity swaps represent approximately 5% of the total Iberian load. The way in which electricity interconnections have proven to be very effective in spreading the contagion of high electricity prices has not been taken into account.
Section 3.4.2 discusses network congestion and the “temporal and spatial granularity of electricity markets”. However, in the network of the future, post-2030 physical congestion will likely be a thing of the past.
Too much electricity from too many renewables on a given grid segment? Use electrolyzers to convert it into hydrogen. Not enough electricity? Ignite the hydrogen turbines. Neither renewables nor electric or energy loads roll across the landscape like caravans of traveling gypsies. This means that one can plan both the production and storage of renewable energy and hydrogen in the grid locations where they are needed.
The idea of such planning is completely absent from the ACER report, which offers markets as a substitute. The problem with this approach is that current markets are cost-maximizing/profit-maximizing mechanisms, which are functionally incapable of planning anything.
In a renewable world with electrolysers and hydrogen as the main storage mechanism, what role for the markets? It’s no surprise that ACER never even tries to ask the question.
Section 4.2 briefly covers how renewables are remunerated before focusing on Power Purchase Agreements (PPAs), i.e. those between a renewable generation owner and a company wishing to purchase renewable energy.
However, PPAs represent only a tiny fraction of the overall electricity production in a given Member State. Nevertheless, the ACER report reads like a lobbying document for more PPAs and presents them as a “trade-driven approach” in contrast to the “subsidy-driven” approach of centralized tenders, i.e. auctions and contracts for difference. However, renewables via the auction/CfD route provide by far the cheapest electricity and provide the certainty that renewables developers need.
At no time does ACER take into account the impact of zero marginal cost renewable energies on wholesale electricity prices. Indeed, nowhere in the report does the expression “zero marginal cost” appear.
And yet, it is a defining aspect of renewable energy. Because they have zero marginal costs, they cause massive price drops when they make up a large share (60%+) of the production mix.
Take Germany and Spain, for example. By 2030, Europe’s largest economy will have 340 GW of renewables connected to its system, Spain 100 GW, etc. feasible.
But these realities and the impacts on the large-scale renewable energy market are never considered.
If the Member States really want to do something about high energy prices and the ACER report, the first step would be to cross-examine ACER on the report and its content at the next Council European.