Seven EU member states have cautioned the European Commission against altering the electricity market design. They argue current high energy prices stem from gas dependence, not market structure.
Seven member states urge caution on electricity market changes
Seven European Union member states have urged the Commission to not alter the functioning mechanism of the electricity market, the system that determines energy prices in Europe, as officials in Brussels seek solutions to reduce bills.
The discussion about the marginal pricing system for the wholesale market has become very heated again among EU members after EU Commission President, Ursula von der Leyen, announced the intention to reconsider the market design. Ahead of the next European Council on March 19-20, von der Leyen is working on a series of assessments to understand whether the time has come to proceed with a reform of the market structure.
In a document sent to EU Energy Commissioner, Dan Jorgensen, and seen by Reuters, seven European governments warned, however, that disrupting the underlying mechanism of the European energy market would harm the system’s effectiveness and lead to higher bills. In the letter, these governments explain that intervening in the electricity market design and modifying price formation mechanisms would only increase regulatory and market uncertainty, negatively impacting investments and thus European competitiveness. The letter, dated March 5, bears the signatures of the Energy Ministers of Denmark, Finland, Latvia, Luxembourg, Portugal, the Netherlands, Sweden, and Belgium.
EU dependence on imported gas drives high energy prices in Europe
These seven countries stated in the document addressed to the Commission that the EU’s dependence on expensive imported gas is the main cause of high energy prices in Europe, not the electricity market structure. The signatories also urged Brussels to rapidly increase the use of cheaper renewable energy sources to limit the role of gas in price determination.
The main European electricity sector lobby also issued a strong warning to the European Commission President, urging her to desist from further interventions in the energy market design. In a letter, seen by Bloomberg, the presidency of Eurelectric, representing over 3,500 companies in the sector, expressed “deep concern” regarding any new modifications to the price formation system. The letter reportedly had a very firm tone. Eurelectric warned of the concrete risk of completely paralyzing the investments necessary for the transition.
The rift opened by Italy
The requests from this group of states run counter to Italy’s position. With the Energy Decree, Rome introduced a refund for thermoelectric producers, removing carbon charges from gas power plant bills. The goal is to intervene in the marginal price and thus the wholesale electricity price. Italy’s move, however, has opened a rift with Brussels because it implies a radical change to the mechanism by which prices are set. The objective of Italy and another group of EU countries is for the Commission to modify the electricity market structure to separate gas and renewable prices.
The energy sector considers Italy’s proposal to defiscalize carbon costs or intervene in wholesale prices dangerous, fearing that such measures would fragment the single market and make Europe less attractive for investments.
“If Europe wants to matter in a rapidly changing global context, it must strengthen its internal market, reduce administrative burdens, and accelerate regulatory simplification. From this perspective, there is no more time to lose, starting with what we consider an absolute priority: energy costs,” recently said Prime Minister Giorgia Meloni.
“The commitment we have made – she added – is to build concrete responses, already at the March European Council, because we cannot ask our businesses to compete in global markets if they structurally pay more for energy than their competitors.”
