The surge in wholesale electricity prices across Europe is currently calling into question the operating principles of these markets and their impact on prices for end consumers, both businesses and individuals. Some countries, such as France, are particularly questioning the excessive influence of fossil fuel commodity prices—especially gas—on the formation of wholesale market prices.
This correlation has led to two main and widely criticized consequences: on the one hand, an overly strong link between the tariffs paid by consumers and the production cost of gas-fired power plants, which does not reflect the average electricity mix; and on the other hand, excessive wholesale price volatility, which fails to provide a stable signal for investment.
Several reform proposals are currently under discussion within European institutions in response to these criticisms. From these reflections and proposals, two key questions emerge:
- Should the market design be adapted to introduce or reintroduce price signals or long-term contracts, as notably suggested publicly by the President of EDF?
- Should (and will) the wholesale market price cease to serve as a relevant reference for investment price signals, remaining only a tool for optimizing dispatching?
The political and regulatory decisions that will eventually be made in response to these questions could have major implications for all players across the electricity value chain (producers, investors, consumers, etc.), potentially leading to a profound transformation of certain business models by affecting the revenue structures of generation assets.
Back in 2018, as part of a foresight study conducted for the French Energy Regulatory Commission (CRE), E-CUBE Strategy Consultants submitted these same questions to a panel of around one hundred global energy sector experts, and also analyzed the arguments for and against such changes.
We are republishing that analysis in the following pages.
All of the analytical documents produced by E-CUBE as part of its work for the CRE can be found on the Prospective Committee’s website at the following link: https://www.eclairerlavenir.fr/etude-sur-les-perspectives-strategiques-dans-le-secteur-de-lenergie/
