European governments should swiftly implement the new regulations for the EU electricity market, asserts Leon Birnbaum. This will allow the economy to plan long-term. Additionally, more pragmatism is needed in international trade agreements.
After Russia’s aggressive war against Ukraine and increasing tensions in the Middle East, the energy transition has become even more of a geopolitical tool and a security issue than it already was. For us in Europe, this means that energy supply is a European matter and should be a top priority on the agenda.
The EU Needs to Expand and Further Digitalise Its Power Grids
The energy crisis has shown that renewable energies and energy efficiency play a crucial role in enhancing energy security by gradually reducing dependence on imported fossil fuels. For a rapid transition, cost-efficient investments, reduction of bureaucracy, and coordinated management are required. Simultaneously, the expansion and further digitalisation of power grids are essential to maintain the pace of renewable energy expansion in the European Union (EU).
A robust electricity market design is not only key to the success of the energy transition but also a foundation for supply security and affordable prices across the EU energy internal market. Therefore, the German and all national governments should swiftly implement the new regulations introduced by the recent EU electricity market reform to create long-term planning security and release the necessary investments.
A New Capacity Market Is Needed to Provide Incentives for Storage and Flexible Consumption
At the same time, we need capacity mechanisms to support the energy system. Through a capacity market, generation capacities get a price and become tradable. This allows for the provision of appropriate generation capacities with the necessary characteristics at suitable locations based on demand. The same should apply to storage and controllable consumers who shift (a part of) the load to specific times. We need to address load management through a renewed capacity market that particularly provides incentives for storage and flexible consumption.
Given the phasing out of nuclear energy and coal-fired power generation, new suppliers for the energy system must be found in the short term, initially for liquefied natural gas (LNG) and increasingly for hydrogen. Our former dependence, particularly on the Nord Stream pipelines, should serve as a warning in the search for non-Russian gas suppliers. We should not rely on single import routes and secure contractual flexibility to avoid “stranded assets” and the risks of dependence on a single supplier. Autonomy should not be confused with autarky.