“The surge in electricity prices clearly shows the limits of the current functioning of the market. » This is not the first time that Ursula von der Leyen has questioned the efficiency of the European electricity market. But, on this Monday, August 29, the President of the European Commission seems to have realized the obvious. As prices soar and social anger rumbles, the head of the European executive confirmed, during a conference in Slovenia, that the European Union (EU) was working to “structural reform” of this market. And, this, for the beginning of the year 2023, so that gas prices no longer dictate those of electricity. This thorny issue will also be on the menu of the meeting of energy ministers during an extraordinary council on September 9.
It was time because the sling started to organize itself. This weekend, several European leaders had loudly called for this overhaul of the market. “The price of electricity must fall”said Karl Nehammer, the conservative head of the Austrian government, on August 28. “We must not let Putin decide for the Europeans every day”he added. “Europe pays three times more for its gas than Asia, ten times more than the United States”had, on the same day, added Tinne Van der Straeten, the Belgian Minister of Energy, by calling for a European price cap mechanism.
Traveling to Prague on Monday August 29, German Chancellor Olaf Scholz agreed with them. The current system “cannot be described as functional if it leads to such high electricity prices”declared the leader during a press conference, estimating “that we must now act quickly, in a coordinated way”. Berlin has already paved the way for a reform of the electricity market, in order to decouple the price of electricity from that of gas, and lower consumer bills.
“New Realities”
Currently, on the European wholesale markets, it is the price of gas that determines the price of electricity. On the Electricity Exchange, prices are set by the marginal plant, ie the last plant to be started up to balance electricity supply and demand. However, it is often the gas, the most expensive, which is chosen. As a result, power prices have exploded in recent months in Europe, including in Germany, even though, in this country, gas-fired power plants only cover 10% of the electricity mix. And the situation is not going to get better, in France, Engie announced that the Russian Gazprom was going to further reduce its gas deliveries from Tuesday August 30. Faced with the scale of the crisis, President Emmanuel Macron will convene a defense council on Friday, September 1, devoted to the country’s gas and electricity supply.
You have 56.56% of this article left to read. The following is for subscribers only.