Introducing an emergency price cap on electricity similar to the Iberian mechanism as part of the EU’s power market reform would be risky, the European Commission said in response to a request from the Portuguese government.
As the Commission finalises its proposal to reform the EU electricity market, Lisbon has called for measures “to frame the extreme volatility of the market.”
“One solution would be to provide for an emergency clause,” Lisbon says in a working document, stressing that “practice has proved that placing a ceiling on market prices has proved effective”.
In the government’s view, Portugal’s price cap on electricity has had “very positive results” since its introduction last May.
“The development of an emergency clause compatible with the EU market, triggered in exceptional circumstances and under a transparent decision-making process, ensures protection against extreme market volatility, without compromising the proper – and much needed – functioning of the market in regular times,” Lisbon says in its position sent to Brussels in mid-February.
“Such a clause would strengthen the confidence of market participants and consumers,” the Portuguese government argues.
When questioned by Lusa, a senior commission official stressed that “the Spanish and Portuguese measure to lower electricity prices during the energy crisis was considered justified by the particular circumstances of the Iberian electricity wholesale market”.
Given the “limited interconnection capacity of the Iberian Peninsula,” consumers there are highly exposed to wholesale electricity prices “as well as the high influence of gas in setting electricity prices,” the EU executive explained, saying “EU member states are very diverse in terms of their energy mix, connections and energy systems”.
In a recent analysis, the European Commission highlighted “risks related to this type of measures at the EU level, including that of increasing demand for gas and increasing subsidised electricity exports to neighbouring non-EU countries” such as the UK or Switzerland, the official pointed out.
In addition, the Commission has already adopted “several measures that have a de facto impact on the coupling of gas and electricity prices … such as the infra-marginal revenue cap that targets excessive profits from energy production and redirects revenues to end users that are generated when the gas price signal creates high prices on the electricity market,” the official further recalled, speaking of an “instrument designed to help energy consumers without creating the wrong signals about gas demand.”
In January this year, the Commission launched a public consultation, since completed, on reforming the design of the EU electricity market, which aims to protect consumers from excessive price volatility better, facilitate their access to secure energy from clean sources and make the market more resilient. It is due to present its proposal on this matter in mid-March.
In the current EU market setup, gas determines the overall price of electricity when it is used, as all producers receive the same price for the same product – electricity – when it enters the grid.
There has been consensus in the EU that this current marginal pricing model is the most efficient, but the acute energy crisis, exacerbated by the war in Ukraine, has prompted discussion about whether this is, in fact the case.
Since the EU has been dependent on fossil fuel imports, notably gas from Russia, the current geopolitical context has increased the volatility of electricity prices.
Since mid-May last year, a temporary mechanism has been in place to cap the price of gas in electricity generation on the Iberian Peninsula until the end of May 2023.
(Ana Matos Neves | Lusa.pt)
Source: euractiv.com
