The Electricity Market Design in a Period of High Energy Prices

Europe is experiencing very high energy prices, due to the global economic recovery from the COVID-19 pandemic, as well as the conflict in Ukraine. These high energy prices have widespread consequences for a variety of markets, including the gas and electricity markets. Throughout Europe, both of these markets are experiencing record high prices and instability, which begs the question of if these markets are designed with purpose and everyday people in mind, or if it is time for the industry to re-think how things are being done, and go back to the drawing board, to develop a new modus operandi for Europe’s energy ecosystem.

Is the energy ecosystem currently fit for purpose?

The energy ecosystem is a complex landscape, featuring several diverse markets and products, each with their own rules and modes of operation. There are separate rules for the wholesale and retail markets, for gas and electricity, as well as for all other energy products for sale and use in Europe. The recent fluctuation of energy prices has led to calls for the revision of the EU gas market, as well as the design of the EU electricity market. Both of which require immediate attention and action, which we will consider here.

Market instability is a natural moment for questions to arise about the overall framework that the energy sector operates in, and how it is designed. However, high prices do not necessarily mean that the market does not work and has not been designed to survive dramatic fluctuations. It simply signifies a strong moment for reflection and collective action if changes are needed.

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Authors: Pierre Dechamps is based in the FTI Consulting Brussels office.

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