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EU energy policy misses the mark

Recent proposals to reform EU energy markets miss the point according to energy expert Michael Hogan.  The EU’s approach involves changes to the way the wholesale and consumer energy markets operate.  But this misses the real problem:

“The principal cause of the financial woes plaguing the power sector is not market design. It is rather a glut of old, inflexible baseload generation—primarily, but not exclusively coal-fired—that is surplus to requirements and incompatible with the power system’s growing need for more flexible resources.”

The EU is seeking reform because, like the UK, officials fear that a lack of generating capacity threatens power outages in the near future.  But Hogan points to the current of excess coal capacity that has left us drowning in the wrong kind of electricity:

“The top priority in restoring a healthy investment climate to the power sector should be a targeted, ‘smart’ programme for permanently retiring inflexible, old baseload plants as quickly as they become surplus to requirements. To support this, a new, regional, independent framework for assessing generation adequacy must be created—one that fairly accounts for all resources, including energy efficiency, demand response, storage, and interconnection.”

Hogan is highly critical of current arrangements that favour large established fossil fuel companies at the expense of new and more flexible low carbon generation.  This is a particular problem on the demand side, where:

“Decarbonisation of the heat and transport sectors is expected to rely heavily on electrification, and yet the strategies for those new sources of electric demand are being developed without adequate coordination with power market strategies.”

This echoes a concern I have raised many times, that the development of electric vehicles, electric smart appliances and electric heating systems will fail because the current approach to energy markets is not providing either the capacity or low carbon mix that we will need in future.  The real threat is that, as demand increases, capacity shrinks and prices inevitably rise, this will favour business as usual on the part of the existing large energy corporations.  As Hogan warns:

“It would be foolish to expect any market design to succeed unless the conditions necessary for success are in place. From the wholesale to the retail level, consumers, regulators, and government must have confidence that they are not going to be exploited by a few large, incumbent generators and suppliers.”

I wait to see the eventual outcome of the EU’s proposals… but not with baited breath!

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