EU Energy Policy Blog

The PJM market has always been, and continues to be, a source of fascination to anyone interested in organized or competitive wholesale electricity markets. First, it is by far the largest such organized market operating in North America, among the largest anywhere in the world, with 182 GW of installed capacity and a large geographical footprint. Second, PJM was among the first to introduce a number of features, such as locational marginal pricing (LMP), now common place in other markets. Third, PJM has introduced and successfully operates a number of markets, including capacity markets, that are extensively studies by other market operators who believe such a feature may be an improvement to their own.

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Increasing block tariffs structure -also called, progressive tariffs, tiered-rates or inverted block rates- is a pricing model that charges a higher rate per kWh at higher levels of energy usage, and a lower rate at lower usage levels. The model is built around the first block -also called “baseline” or “lifeline”- that corresponds to household essential needs. Each successive block has a higher price per kWh such that the more clients consume, the higher the average price. Such pricing design encourages consumers to save energy thanks to an appropriate price signal, which is even stronger where clients are not charged of basic tariff. As opposed to the current system, in which the combination of basic tariff and a uniform rate makes marginal unit cheaper and cheaper, the introduction of IBT send a price-signal which leads to energy savings. Although, the pricing model is straightforward and easy to understand by households, it is still underdeveloped in Europe while it is already used by more than 90 countries around the world. Continue reading »

The European Commission’s proposal is supposed to deliver more cross-border electricity transmission.It is an extension of the current system of national-welfare centred regulations, a system which does not target the optimisation of the EU electricity network, and as such is inconsistent with a truly single market. However, the integrated first-best solution – a single European system operator, regulated by a single regulator, which develops the network in coordination with generators and consumers – appears politically infeasible. To overcome this, we propose a bold blueprint for a European system to fund and incentivise infrastructure development. The approach is fourfold: (1) implement vertical unbundling; (2) add a European system-management layer; (3) establish a stringent planning process; and (4) phase-in European cost-sharing.
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Cost Benefit Analysis has proven to be a useful tool to support the economic appraisal of important projects in many sectors. Recently, a single Cost Benefit Analysis method has been proposed at EU level to evaluate and compare electricity transmission and storage projects from different countries, which is unprecedented anywhere in the world. Continue reading »

The Energy Policy Act of 2005 requires FERC to publish an annual account of advancements in smart metering and demand response programs in the US, the latest of which was published in Dec 2012. It is a comprehensive survey of 3,349 “entities,” all but a handful considered “utilities” of one form, shape, or size. Over 1,900, roughly 60%, responded – not bad as survey participation rates go. The sheer number of active entities in this space is simply mind-boggling and may explain why it is difficult to get things done, whether it is demand response or anything else.
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Since the first wave of nuclear reactors in 1970 to the on-going construction of Generation III+ reactors in Finland and France, nuclear power seems to be doomed to a cost escalation curse. If the curse is not stopped, nuclear power competitiveness will be compromised. On the one hand, construction expenses represent about 60% on the total cost of generation of this technology and on the other hand alternative sources of energy have experienced important decreases in their fixed costs. If the trends go on, nuclear power will become more expensive while competing technologies will become cheaper.
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The French Lower House passed a law last October introducing progressive tariffs for all energies distributed through a network: natural gas, electricity and heat. Though it was rejected by the Senate, the government is still supporting it. Introducing progressive tariffs for energy was one of the 60 promises of French President Hollande during his campaign. The law aims at reducing residential energy consumption and fighting fuel poverty. But the system proposed by the Lower House is extremely unlikely to reach these two goals. Continue reading »

Few would argue with the claim that Texas has the best wholesale and the most competitive retail electricity market in the US, if not the world. But it suffers from an ailment called inadequate resource adequacy. Private investors, who are the key stakeholders in building generation capacity, appear unable and/or unwilling to invest sufficiently in what the regulators and the market operator would like to see in terms of a comfortable reserve margin.

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Harmonisation in matter of capacity adequacy is not on the 2014 agenda of electricity markets integration. But the Council of European Energy Regulators (CEER), the European Commission and different European bodies of stakeholders have engaged reflections on this issue. A guideline of good practices on generation adequacy and capacity remuneration mechanisms initiated by the CEER is currently in discussion. The DG Energy is partly focusing the redaction of its next October Internal market communication on capacity remuneration mechanisms. Free trading and cross-border contracting on capacity rights are on the top of the list. Continue reading »

Market coupling is one of the key-policies for achieving the EU single electricity market. The EU Commission praises the price-lowering effects of market integration in the first draft of the Internal Market Communication of August 30th: “wholesale electricity prices in the EU have risen much less thanks to competition facilitated by increasing cross-border trading and market integration”. Continue reading »