Achieving key Energy Union policy objectives—energy security, internal energy market completion, and 2030 greenhouse gas abatement targets—depends on the EU’s ability to develop coherent rules that better align market and climate objectives and facilitate collaboration and resource sharing among Member States. The Market Design Initiative: Towards Better Governance of EU Energy Markets makes four recommendations for ensuring that the market design initiative is aligned with all of the Energy Union objectives.

“A fully functioning and sustainable energy market that embraces efficiency first principles and efficiently integrates the emerging low-carbon resource mix is critical to meeting the Energy Union objectives,” said Michael Hogan, RAP senior advisor. “That calls for a framework for sharing resources efficiently across borders and tapping the most cost-effective sources of system flexibility to ensure security of supply at least cost, as well as a more open energy system that attracts a diverse range of new players and innovative business models.”

To better align the EU’s climate and energy objectives with the development of the single internal energy market, the authors first recommend that the duties and responsibilities of actors charged with delivering the market—in particular the Commission, the Agency for the Cooperation of Energy Regulators, ENTSO-E, transmission system operators, and distribution system operators—be more explicitly aligned with these objectives. Other important factors to consider include ensuring appropriate accountability, independence, strength of powers, and oversight. The authors also see an opportunity to pursue better implementation of energy regulation through greater use of the Commission’s existing enforcement powers.

As market integration progresses, the need for new regional institutions will become critical, particularly in relation to system operation and resource adequacy assessment. Such regional institutions, if sufficiently independent and free of vested interests, could significantly advance cost-effective energy resource sharing across Europe. The authors recommend creating independent regional system operators (IRSO) charged with least-cost delivery of system balance and other policy objectives. IRSOs could also assess resource adequacy on a regional level, applying an improved methodology that incorporates the demand side and interconnection. The Commission will need to provide adequate oversight of IRSOs and other regional institutions.

A thorough review of the local energy markets, including the role of the distribution system operators, the rights and roles of consumers, and the efficient delivery of energy infrastructure is also needed to ensure that regulation and governance of these markets are aligned with Energy Union climate and energy goals.

Finally, the authors identify the need for improved market monitoring so that decision-makers and investors can be confident that markets are functioning effectively and policy objectives are being met.

The Regulatory Assistance Project, in collaboration with E3G and ClientEarth, produced The Market Design Initiative: Towards Better Governance of EU Energy Markets. Josh Roberts of ClientEarth and Simon Skillings of E3G authored the report with contributions from Hogan, Sarah Keay-Bright, and Phil Baker of RAP.