Achieving Europe’s low-carbon goals while maintaining a competitive and secure power system requires a refined market designed to drive transformation at least cost. The Pentalateral Energy Forum, an initiative of Austria, Belgium, France, Germany, Luxembourg, the Netherlands, and Switzerland, is exploring optimal market design within and among their borders. This paper reviews options for designing the day-ahead, intraday, balancing, and capacity markets while also taking into account the flexibility needed to maintain reliability in the Pentalateral region at least cost to industry and consumers.

The authors identify four key issues for consideration:

  1. Security of supply requires consideration not only the amount of capacity, but also the kind of capacity.
  2. Security of supply should be evaluated across borders to reduce the cost and need for flexibility.
  3. Reforming the energy-only market is a no-regret option that allows markets to better reflect the real-time value of energy and balancing resources.
  4. If security of supply is addressed through a capacity mechanism, resource capability, rather than capacity should be the primary focus.

The Regulatory Assistance Project wrote this paper on behalf of Agora Energiewende. Additional information and related resources are available here.