regulators oppose reform promised by France

regulators oppose reform promised by France

It is a firm position, which will displease supporters of a profound reform of the European electricity market, and those who have never really digested its liberalization in 1996. Firstly the French government, while the Minister of Economy, Bruno Le Maire, qualified this system last fall as ” aberrant in the face of soaring energy prices, and firmly rejected the use of gas as a price-fixing factor on the scale of the Twenty-Seven.

Because the European Agency for the Cooperation of Energy Regulators (ACER) defends, unsurprisingly, another line: in a long-awaited report commissioned from it last year by the Brussels executive, it insists on the contrary on the benefits of this market in the face of the energy crisis. And affirms, against the grain of the French government, that the latter has rather contributed to mitigating the impact. For example, by allowing France, affected by a historic lack of nuclear production, to import more electricity.

And for good reason, in France, on April 4, spot prices [établis sur le marché de l’électricité par les bourses le jour J pour le lendemain] burst the ceiling to reach up to 3,000 euros per megawatt hour (MWh) against nearly ten times less in neighboring countries! Unable to provide its own power supply due to a lack of availability of power plants, France had no choice but to import massively, from Germany and England in particular. An exceptional event but which testifies, according to ACER, to the need for Member States to have an integrated and interconnected market.

France: this worrying lack of electricity which forces us to import

Sale at marginal cost

And yet, the European electricity market operates in such a way that, as a general rule, all the countries of the Old Continent are subject to more or less the same price variations, whatever their national mix. Indeed, its principle is that of sale at marginal cost, that is to say that the prices per MWh depend on the cost necessary to start up the very last plant called in order to meet demand in each State. member, especially during peak hours. However, it is generally a fossil gas or coal-fired power plant, to which electricity prices in the EU will be partly indexed, regardless of their origin.

“This is due to the physical nature of electricity. It cannot be stored and, from one hour to another, its price can vary enormously. Hence the construction of this market, which must make it possible to ensure adjustments according to supply and demand at all times”, underlines to La Tribune a connoisseur of the sector.

An order of economic precedence which explains the incomprehension of some, since it is therefore, among other things, the surge in the price of hydrocarbons called as a last resort which is driving up all electricity prices on the continent. Including in France, where it is however the atom and hydraulics, and not fossil fuels, which provide the bulk of the supply.

However, this mechanism is not absolute: a lack of margins during peak periods, as was the case in France at the beginning of April, can still cause spot prices to explode in certain territories. Indeed, interconnection capacities between countries are technically limited to approximately 12 GW, even if European network managers are working to increase this figure.

“Contrary to popular belief, within the EU there is not just one
single market, but one market per Member State. Thus, when forecasts are established for the following day, the optimal exchanges between the countries are defined, taking into account the interconnection capacities between the networks. If exchanges remain below 12 GW, prices balance out: the same is found on both sides of the border. But if we exceed them because we demand a lot of electricity from the neighbor because of a lack of production, a decoupling of the markets takes place, ”explains a former senior manager of EDF.

Nuclear: “We need 50 EPRs by 2060, a 100% renewable scenario is not realistic” (André Merlin, founder of RTE)

Interventionism viewed with suspicion

As a champion of the liberalization of the market, ACER thus warns against government measures aimed at lowering energy prices, even though they are currently reaching peaks. And considers in his report that ” the more interventionist the approach, the greater the potential for market distortion “.

Such an approach could indeed curbing private sector investment» in innovative low-carbon technologies needed for the energy transition, argue regulators.

Regarding the current emergency situation in Europe, ACER is not convinced that capping electricity prices will solve the problems in the short term. On the contrary, it risks exacerbating them»warned Christian Zinglersen, director of ACER, referring to the measures recently adopted in Spain and Portugal.

Indeed, the two countries of the Iberian Peninsula reached an agreement with the European Commission on Tuesday to lower the price of electricity, under a derogatory regime allowing them to dissociate it from that of gas. It will initially cap the price of gas used in electricity production at 40 euros per MWh, with an average target of 50 euros over the next 12 months.

More interconnections to ensure flexibility

Although ACER opposes this type of initiative, it nevertheless considers that longer-term improvements to the market could prove necessary, so that it really supports the development of renewable energies. And this, by setting up support schemes and contracts for the purchase of electricity by companies, for example.

But there is no question for regulators of going back on the integrated model of the European market, which should conversely be strengthened. And for good reason, another key objective of ACER is to ensure greater flexibility of the electricity system as more intermittent renewable energies, such as wind and solar, are added to the electricity mix. This requires improving the interconnections between countries, in order to supply, for example, those who could temporarily suffer from a lack of wind production due to the absence of wind.

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