Electricity Market Reform in Europe: Creating a Decarbonised, Reliable, and Affordable Power System



The European Climate Foundation’s Roadmap 2050 study and other European reports highlight the need for Europe to decarbonise its power sector by the 2030s in order to achieve its economy-wide 2050 carbon reduction targets. RAP is working with Member States, EU policymakers, and stakeholders to design an optimal mix of policies and market rules that will attract the needed investment in zero-carbon and low-carbon resources, and do so in the most affordable way to consumers, while simultaneously creating economy-wide benefits.

Examples of RAP’s work in this area include:

  • Policy and technical advice on a Clean First approach to power sector regulation in Europe, including how market reforms to include capacity payments can be designed to enable and sustain a decarbonized power sector.
  • Leading practices and emerging approaches for ensuring sufficient flexible reliability resources to balance intermittent renewables in an increasingly decarbonised European power sector. At meetings in Brussels, Germany, and the UK, RAP has presented some of the key challenges and lessons to draw from in considering the next generation of market arrangements for a resilient and secure power system. An overview of these issues and RAP’s current thinking on robust market design options to address them are presented in our ‘Beyond Capacity Markets‘ papers and presentations. RAP compiled an overview of the types of dispatchable demand response projects that have successfully competed in US forward capacity markets to illustrate how the demand-side can effectively provide system flexibility.
  • Expertise on policy and design options for an Emissions Performance Standard (EPS) by a wide range of stakeholders and officials in the UK and throughout the EU. For this purpose, RAP prepared this summary of EPS statutes and related carbon emissions performance rules that have been adopted in selected US states.
  • Policy expertise to facilitate energy market reform-related (EMR) dialogues among government, industry, environmental, and other stakeholders. RAP performed this role at a recent workshop that delivered a broad-based consensus on carbon capture and sequestration (CCS) policies in the UK. This process informed the UK government’s decision in late 2009 to halt new approvals for unabated coal plants and instead support investments in CCS commercialization.

The EU set itself the goal of developing a single European electricity market by 2014. RAP is working with regulators, policymakers, and stakeholders to explore how these forthcoming market integration rules can best be crafted to complement, rather than work at cross purposes with, Europe’s decarbonisation agenda. In comments to the European Commission, RAP emphasized the importance of establishing effective market mechanisms to encourage investment in resources capable of providing critical system services, including energy efficiency and demand response resources. The Commission solicited public input as part of its Communication on “Making the Internal Energy Market Work,” which is designed to help meet the 2014 deadline for completing the internal energy market.

In this briefing paper, RAP presents an overview of the key elements of European electricity market integration, looking at how decisions in the various areas of integration may act either to advance or interfere with Europe’s power sector decarbonisation agenda.

RAP also prepared three advisory notes on key market integration topics issued for comment by the Agency for the Cooperation of Energy Regulators (ACER): Framework Guidelines for Grid Connection, Capacity Allocation and Congestion Management for Electricity, and Balancing Framework Guidelines to Promote an Integrated, Low-Carbon, European Electricity Market.

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