NordREG responds to the European Commission’s public consultation and prospective changes to the Electricity Market Design

Nordic energy regulators (NordREG) have together responded to the European Commission’s public consultation on the Electricity Market Design. In addition to the consultation response, NordREG has also published and submitted to the European Commission a joint position paper highlighting the fundamental principles which in NordREG’s view should guide the upcoming work on how to address the issues of the electricity market and how to reshape the current market design.

In the response to the European Commission’s public consultation NordREG is positive towards the short-term market as it delivers efficient price and dispatch signals as well as efficient investment incentives. NordREG finds that marginal pricing remains the best choice for encouraging correct bidding behaviour. Also, NordREG is positive towards the forward market, and has highlighted positive experience with virtual hubs in the Nordic region.

On the other hand, NordREG does not support CfDs*. NordREG finds CfDs creates distortionary incentives, especially around low/negative prices, it has a very negative impact on hydropower and it removes liquidity from forward markets. Furthermore, NordREG is negative towards public PPAs, especially when obligatory and/or physical. Lastly, NordREG is negative towards the inframarginal cap, as it hampers investments in capacity for those hours where electricity is most expensive.

NordREG’s position paper points towards five fundamental principles to guide the further work towards the issues of the electricity market and changes to the current market design: Short Term Markets are Functioning Well, Market Distortion and Fragmentation should be avoided, NordREG supports improvements in the European forward markets, A reform of the electricity market design should be based on Impact Assessments and Competitive retail markets provide real benefits to end users.

The Commission’s consultation and prospective changes to the electricity market design is aimed at addressing the current energy crisis, which threatens the economic and social welfare of the European countries and the EU. The crisis has led to high prices, which negatively affects consumers and the overall economy, as well as concerns for security of supply.

*NordREG understands the typical two-way CfDs in question here entail (i) the state as a single buyer, (ii) settlement with single strike price (typically against the DA price) and produced volume and (iii) direct settlement with all consumers through taxes and levies (bonus or malus)

NordREG is a cooperative initiative between Nordic energy regulators. NordREG actively promotes efficient and advanced energy markets, for the benefit of consumers towards a decarbonized society.