The European energy crisis was not caused by the electricity market. But it sure made people pay closer-than-usual attention to its design. That is not a bad thing. The electricity market becomes ever more important as large swaths of the economy further electrify. The electricity market therefore needs to be fit-for-purpose. In this briefing, RAP lays out how the electricity market can deliver better, faster and stronger for the energy transition and the people living it.

Any follow-up to the crisis should aim to speed up the replacement of fossil fuels with renewables, demand-side flexibility, storage and energy efficiency. The focus of market reform induced by this crisis should be to elevate the demand side on par with supply-side resources and improve hedging in the market to alleviate the remainder of the ongoing crisis and prepare for the next. This requires boosting a new portfolio of longer-term market features to share risks and benefit consumers.

Here, RAP discusses the following advances in market design:

  • Short-term markets see location and scarcity
  • Forward markets allocate risks
  • Contracts for Difference are carefully designed and procured
  • Infrastructure planning and operation integrates sectors
  • Windfall profit taxation as the exception
  • Capacity remuneration mechanisms fit for flexibility
  • Required demand-side flexibility
  • Empowered and protected consumers