Toward a new electricity market model: is decoupling the right approach?

The energy crisis that was triggered by the Russian war in Ukraine has led European power markets to unprecedented levels of prices and stress. It has also led to wide ranging policy interventions and calls for reforms of the wholesale electricity market design.

Whilst the market failures or missing markets that affect electricity markets have been covered in great depth in the economic literature, the historic target model defined in 1980s has remained the basis for Europe’s liberalisation and integration of power markets in the past two decades.

The ongoing energy crisis in Europe has revived the debate on the issues with the current market design based on the marginal cost approach. The policy momentum for a reform of electricity markets seems to be building up as the European Commission announced that it will put forward some proposals in the first part of 2023.

“Decoupling” seems to have become the buzz word in European policy debates. However, there seems to be a lot of confusion on the type and scope of the decoupling. In some cases, decoupling refers to the reduction of European’s dependence on gas imports and the link between international gas markets prices and electricity prices. In other cases, the focus is on the decoupling of price formation in wholesale markets, by splitting the market between dependable and not dependable technologies. Other proposals focus on the policy objective of decoupling end user prices from the wholesale price signals, whilst leaving the wholesale market operating as it does today.

In this context, Université Paris Dauphine-PSL organized the CEEM Conference (Chair European Electricity Markets) with the aim to present and discuss the different proposals for alternative market models that have been put forward by scholars and experts.

Natalia Fabra participated speaking about new electricity market architecture.

See Natalia´s presentation here.

See the program here.