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On the re-regulation of the liberalized power market in Europe

Sven Bode and Helmuth-M. Groscurth

published in: Carbon and Climate Law Review, 2, p. 188 - 197

Abstract

In the coming decades, a significant quantity of new power plant capacity will be needed in Europe. The liberalised electricity market in its current form, however, only offers incentives for the construction of new power plants in exceptional cases. The cause is relatively high capital costs, which is becoming more difficult to cover with the profit margin generated in the market. This situation is exacerbated by the political uncertainty around long-term emissions reduction and renewable energy targets. The lack of clarity regarding emission targets leads to lack of clarity regarding the price of CO2. An increased marekt penetration of renewable energies leads to a) lower wholesale power prices and b) an increasingly discontinuous electricity demand from conventional power plants.

It is therefore necessary to consider a re-regulation of the current market model in order to ensure a cost-efficient, continuous electricity supply given the boundary conditions of climate change policy. This will require an integrated energy and climate strategy that determines which capacities or outputs in a member state, or better yet the EU, should have in the future for the generation of electricity.