The reform of the electricity market design (EMD) adopted in May 2024[1] aimed “to boost renewables, better protect consumers and enhance industrial competitiveness”. Despite calls for an overhaul of the short-term market, including by a number of very prominent and influential figures[2], the reform confirmed the ‘marginal pricing’ design of the day-ahead market, which is in fact ever more important to provide accurate short-term price signals. These signals are essential to attract the resources necessary to increase the flexibility of the electricity system that the increasing penetration of variable renewable-based generation requires.
Therefore, despite being labelled as a ‘reform’, the latest amendments to the EU electricity market rules can be seen as complementing the existing short-term markets, whose design has not been fundamentally changed, with additional features and instruments on the long-term timeframe to protect consumers from future price spikes and stabilise electricity costs for industry and revenues for renewable-based and other generators.
To reach net zero as required by the EU Climate Law of 2021[3], the scale of investment in Europe must be drastically ramped up in the last half of this decade. Interim targets are already being missed. The challenges to raise the predicted investments of over 650 billion euros – a large percentage of which must be mobilised from the private sector – requires an urgent rethinking of the role of long-term contracts in securing rapid and deep decarbonisation in the energy transition.
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