More than Reforming the Markets, Electricity Tariff Reform Can Be Helpfull in Adressing High Prices
In an article published in "Le Monde ", energy economist Cédric Philibert recommends a progressive and real-time pricing system, which would preserve the incentive effects that would be eliminated by the abolition of the single European market.
What can we expect from a electricity markets' reform ? In these European wholesale markets, all megawatt-hours consumed at the same time are paid for at the price demanded by the generator with the highest instantaneous marginal cost - usually gas-fired power stations. This "pecking order" principle has ensured that electricity supply and demand have been matched until now.
The war in Ukraine has pushed up the price of gas, and the unexpected weakness of the French nuclear park has greatly increased the use of gas-fired power plants. The average cost of generating electricity is well below these marginal costs. Nuclear reactors, hydroelectric dams, wind turbines and solar panels have not experienced a sudden increase in production costs, as they pay little or no fuel.
The market reform proposals put forward by the Greek government or by Michael Liebreich, founder of Bloomberg New Energy Finance, would separate two markets: a market for low-carbon, renewable or nuclear electricity, and a market for electricity from fossil fuels (gas or coal).
This Tribune wrote by Cédric Philibert is only available in French in Le Monde
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Cédric PHILIBERT
Chercheur associé, Centre énergie et climat de l'Ifri
