Electricity Market Design, Decarbonization, and Industries’ competitiveness

Author(s): Andrei Marcu, Pauline Nouallet, Alexandra Maratou, Mehtap Alper Saglam

This report discusses, through the prism of decarbonisation, some of the main elements of the EU electricity market design (EMD) proposal put forward by the European Commission in 2023.

After an introduction and background to the EMD reform (chapter 1), chapter 2 discusses the interaction of the current market design with climate policy, as well as some of the emergency measures taken by EU countries in 2022. Reflecting the EMD proposal, chapter 3 focuses on Power Purchase Agreements (PPAs), Contracts for Difference (CfDs) and Capacity Remuneration Mechanisms (CRMs) and their link to decarbonisation. Chapter 4 then provides considerations and open questions with respect to both short-, and long-term instruments from the perspective of industry competitiveness, as well as an overview and initial assessment of various proposals for more profound modifications of the current market design to reduce price volatility and/or investor risks, put forward over the last years. Finally, chapter 5 provides concluding remarks and takeaways.