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The economics of electricity markets: theory and policy
In: The Loyola de Palacio series on European energy policy
Sector coupling and the evolution of the gas sector : new tariffication principles for gas infrastructure?
In line with the EU vision for a carbon neutral economy by 2050, the role of gas in the energy mix is expected to change considerably over the coming years – not only will gas volumes be shrinking, but more profoundly, gas generation and consumption will be transformed. Such changes have wide reaching implications for the sector, including the suitability of infrastructure and allocation of its costs to different uses. The current EU tariff model of charging on the basis of consumption well supported the transition from a vertically integrated organisation of the gas industry, to a single liberalised market. However, if the network persists with this approach the recovery of its costs will be based on charges on an increasingly small number of consumers. Moreover, as regions decarbonise at different speeds or choose different energy pathways, these dynamics will develop differently across the EU. Redesigning the tariff charging methodologies can avoid these potentially unfair allocations of costs. This Report explores different tariff methodologies to assess their advantages and drawbacks within the context of the expected new conditions of the gas sector, as well as the potential policy implications.
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The integration of the European electricity markets at a turning point: from the regional model to the Third Legislative Package
In this paper we discuss the EU policy on electricity markets integration by reviewing the experience of the Electricity Regional Initiatives. The regional approach to market integration delivered important results in areas such as coordination among national transmission system operators, implementation of market-based mechanisms for cross-border transmission capacity allocation and transparency. Furthermore, the inclusive governance process lead by ERGEG gave voice to all relevant stakeholders. However, there are indications that the regional model reached its limit when faced with the objective of coordinating day-ahead and real-time markets. The unanimity approach at the regional level made the intra-regional decision-making process extremely slow. Further, inter-regional integration issues have not been solved yet and attempts to tackle them by prioritising projects in some Regions weakened the pluralistic attributes of the regional model. The Third Legislative Energy Package has the potential to overcome some of these shortcomings by empowering pan-European institutions (ENTSO and ACER) and by involving Member States in the decision making process. Some weaknesses of the second-package, though, persist in the new framework. First, there are no provisions ensuring that ENTSO will have appropriate incentives to act in the interest of European consumers. Second, the Third Package perpetuates the separation between within-country congestion management – which remains a national issue – and cross-border congestion management – to be dealt with at the EU level. This two-tier approach is inconsistent with the highly meshed nature of the European network and is likely to result in inefficient market design. Further, the implementation of coordinated cross-border and national congestion management mechanisms requires considering geographically differentiated prices within countries, a politically unattractive result for most Member States.
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