For a Market Design that Supports Security of Supply and Adequacy

19 January 2023

EUGINE and EUTurbines, the gas power plant technology providers, have published a common paper outlining ideas on how to re-design the European electricity market to ensure it supports security of supply and generation adequacy.

A key message is that it is important not to mix up short-term measures, aiming at limiting the impact of the current crisis, with long-term measures, which should make the power and energy system reliable, affordable and fit for net-zero.

In a decarbonised energy system, gas power plants will still be essential providers of firm (i.e. available on demand) electricity and heat, and operate in a climate-neutral way. The electrification of the transport and heating sectors, coupled to high shares of variable power generation, will require a significantly higher share of flexible loads such as gas power.

A market design that supports flexible and firm capacity needs to include the following building blocks:

  • Short-term markets: Short-term markets are key to ensure cost-efficient dispatch of generation and flexibility. The presence of gas power plants in spot markets, jointly with all other technologies, is and will be essential to ensure the grid operates flexibly and reliably, whilst keeping costs at an affordable level in periods of low supply.
  • Long-term markets: Long-term markets and their corresponding price signals are essential to drive investments in adequacy and long-term flexibility, and need to be improved and further developed. Long-term markets include and are not restricted to forward markets, capacity contracts and power-purchase agreements.
  • Markets for capacity and resilience: Capacity mechanisms are today the most efficient option to ensure system adequacy. However, those markets should not just promote any capacity, but capacity that matches specific energy and grid needs.
  • Better remuneration of grid services: The integration of European energy markets and grids has increased the block’s resilience and should not be abandoned. The resilience of European grids can however still be improved by integrating locational price signals and better remunerating the services provided to ensure constant quality of service to the final customer.

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