Redesigning the European electricity market
An overview of policy options and their implications
Russia’s invasion of Ukraine has sent gas prices to unprecedented highs. These price spikes spilled over to the
electricity sector due to the marginal pricing mechanism – which mandates that the highest cleared bid sets
the price in each market session.
The reform proposals that are discussed range from the expansion of market-based instruments to a
complete abolishment of marginal pricing, replacing it with pricing based on average production costs. We
take up the ongoing discussion to explore possible market architectures.
Therefore, we outline the main market design elements:
- Reduce windfall profits in crisis situations through the expansion of two-sided CfDs for producers of
low-carbon electricity
- Redesigning auctions to drive the transformation towards carbon neutrality: a stronger reliance on
auctions requires a better process to select projects.
We conclude that a reform is more promising than setting up a completely new market architecture, as there
are already in the current system instruments to achieve price resilience and a fast response in energy crises.
THOMASSEN Georg;
CHONDROGIANNIS Stamatios;
FLEGO Gianluca;
VITIELLO Silvia;
2023-06-19
Publications Office of the European Union
JRC130696
978-92-68-03938-0 (online),
1831-9424 (online),
EUR 31523 EN,
OP KJ-NA-31-523-EN-N (online),
https://publications.jrc.ec.europa.eu/repository/handle/JRC130696,
10.2760/26141 (online),
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