ACER wrong conclusions on EU wholesale electricity markets – EURACTIV.com

ACER’s report on wholesale electricity markets defends the status quo despite evidence that these same markets have generated massive and unnecessary increases in electricity prices for EU citizens, writes Mike Parr.

Mike Parr is the director of cana UK based company providing market research and technical support 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 interests of EU citizens by asking probing questions about the markets and how they work.

The report he delivered on April 29 does not either. The 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 address the key issue: how to price wholesale electricity at 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 this would not work).

An increasing 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. Some concerns are echoed by some Member States, such as France and others, who have made clear their desire for fundamental reform of the kind not found in the ACER report.

The report is 78 pages long and a page-by-page analysis is not possible here. Therefore, I will restrict this analysis to sections 3 (Design of the EU wholesale electricity market: benefits and remaining implementation challenges) and 4 (Ways to improve the EU wholesale electricity market).

Section 3.1 (page 18) states: “The design of the EU electricity market is influenced both by the characteristics of electricity (eg that it cannot be easily stored) and by broader policy objectives”.

This is questionable. Although electricity is not stored on a large scale now, the electrical system is transitioning to a hybrid system of renewables along with hydrogen-producing electrolysers that will provide, via a retrofitted gas grid, the terawatt hour-class storage that needs an EU energy. system.

This is EU policy. ACER mentions hydrogen five times in the document, but assumes that this energy carrier will only have a significant impact after 2030. Furthermore, this fits poorly with the statement on page 53, which states: “this ACER assessment focuses on the benefits and drawbacks of the EU electricity market design, notably in terms of its ability to achieve the EU’s decarbonisation trajectory over the next 10 years. -15 years”.

Given the 2032-2037 time frame, why was hydrogen only briefly referenced on page 32 in the context of greater long-term flexibility? Given its potential as a store of electricity, why was it not considered a significant influencing factor in market design?

contradictions

The report is riddled with contradictions, and it is clear that no one has read the entire report for consistency. Page 55, Section 5.1 discusses various options for intervention in the electricity market and rejects the “splitting of the electricity market into different technologies…. production quotas and prices established administratively for each technology”.

Section 4.2 describes the various measures used by Member States to promote renewable energies, which define the price and technology and indirectly the production quotas. ACER, on page 55, denies and criticizes points that it qualifies as realities on page 35.

The title of Section 3.2 is “Dispelling some myths…”, but ACER then develops its own myths about ‘pay as you offer’ vs. ‘pay as you settle’. He cites the example of California in 2001/2, the wholesale electricity price scandal and attempts by the Californian authorities to do something about it.

He then fails to mention that the scandal was mainly caused by Enron and others using grotesque market manipulations. Such market manipulation fits very badly with ACER’s (and NEMO’s) “myth” of perfect markets that do not need reforms and have honest and rational players.

Much of Section 3 deals with the minutiae of cross-border trade, which accounts for only small amounts of total cargo. For example, between Iberia and France, electricity swaps account for around 5% of the total Iberian load. It does not consider how electricity interconnectors have proven to be very effective in spreading the contagion of high electricity prices.

Section 3.4.2 discusses network congestion and the “time and space granularity of electricity markets”. However, in the network of the future, post-2030 physical congestion is likely to be a thing of the past.

Too much electricity from too many renewables in a given grid segment? Use electrolyzers to turn it into hydrogen. Not enough electricity? Turn on the hydrogen turbines. Neither renewable nor electrical or energy loads roll through the landscape like itinerant caravans of gypsies. Which means that one can plan both the generation and storage of hydrogen and renewables at the grid locations where they are needed.

The idea of ​​such planning is totally absent from the ACER report, which proposes markets as a substitute. The problem with this approach is that today’s 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 markets? Not surprisingly, ACER doesn’t even try to pose the question.

Section 4.2 briefly covers how renewables are remunerated before focusing on power purchase agreements (PPAs), that is, those between an owner of renewable generation and a company that wants to buy renewable energy.

However, PPAs only represent a minuscule part of the total power generation in a given member state. However, the ACER report reads as a lobbying document for more PPAs and frames them as a “commercial-driven approach” in contrast to the “subsidy-driven” approach of centralized competitive bidding, i.e. auctions and contracts for difference. . However, renewables through the auction/CfD route offer by far the lowest cost electricity and provide the certainty renewable developers need.

At no time does ACER consider the impact of zero marginal cost renewables on wholesale electricity prices. In fact, nowhere in the report does the phrase “zero marginal cost” appear.

And yet, that is a defining aspect of renewable energy. Because they have zero marginal costs, they cause massive price drops when they make up a large (60%+) part of the generation mix.

Take Germany and Spain, for example. By 2030, the largest economy in Europe will have 340 GW of renewable energies connected to its system, Spain 100 GW, etc. realizable.

But these realities and the market impacts of large-scale renewables are never considered.

If member states are serious about doing something about high energy prices and the ACER report, the first step would be for ACER to question the report and its contents at the next European Council.