IDEAS home Printed from https://ideas.repec.org/p/cam/camdae/2325.html
   My bibliography  Save this paper

An assessment of the European electricity market reform options and a pragmatic proposal

Author

Listed:
  • Chaves, J. P.
  • Cossent, R.
  • Gómez San Román, T.
  • Linares, P.
  • Rivier, M.

Abstract

The current European energy crisis, caused to a large extent by the unlawful invasion of Ukraine by Russia, has renewed calls for a deep reform of the European electricity market. In this paper, we look at the alternatives proposed for the reform of the European electricity market, analysing their advantages and disadvantages, and we put forward a specific proposal for the reform. We focus mostly on measures directed at the wholesale generation market, although we also propose some changes that we believe will also be needed at the retail level. Emergency measures to tackle the current energy crisis, which are not necessarily consistent with the long-term reform and should definitely not determine the long-term design of the European electricity market, are very briefly assessed in an annex, including their compatibility with this long-term reform.

Suggested Citation

  • Chaves, J. P. & Cossent, R. & Gómez San Román, T. & Linares, P. & Rivier, M., 2023. "An assessment of the European electricity market reform options and a pragmatic proposal," Cambridge Working Papers in Economics 2325, Faculty of Economics, University of Cambridge.
    • Handle: RePEc:cam:camdae:2325
    as

    Download full text from publisher

    File URL: https://www.econ.cam.ac.uk/sites/default/files/publication-cwpe-pdfs/cwpe2325.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Karsten Neuhoff & Jörn C. Richstein & Mats Kröger, 2023. "Reacting to Changing Paradigms: How and Why to Reform Electricity Markets," DIW Berlin: Politikberatung kompakt, DIW Berlin, German Institute for Economic Research, volume 127, number pbk189.
    2. Newbery, D., 2005. "Why Tax Energy? Towards a More Rational Energy Policy," Cambridge Working Papers in Economics 0508, Faculty of Economics, University of Cambridge.
    3. Eicke, Anselm & Schittekatte, Tim, 2022. "Fighting the wrong battle? A critical assessment of arguments against nodal electricity prices in the European debate," Energy Policy, Elsevier, vol. 170(C).
    4. Gerres, Timo & Chaves Ávila, José Pablo & Martín Martínez, Francisco & Abbad, Michel Rivier & Arín, Rafael Cossent & Sánchez Miralles, Álvaro, 2019. "Rethinking the electricity market design: Remuneration mechanisms to reach high RES shares. Results from a Spanish case study," Energy Policy, Elsevier, vol. 129(C), pages 1320-1330.
    5. Newbery, David, 2016. "Missing money and missing markets: Reliability, capacity auctions and interconnectors," Energy Policy, Elsevier, vol. 94(C), pages 401-410.
    6. Ignacio J. Perez-Arriaga and Pedro Linares, 2008. "Markets vs. Regulation: A Role for Indicative Energy Planning," The Energy Journal, International Association for Energy Economics, vol. 0(Special I), pages 149-164.
    7. Neuhoff, Karsten & Richstein, Jörn C. & Kröger, Mats, 2023. "Reacting to changing paradigms: How and why to reform electricity markets," Energy Policy, Elsevier, vol. 180(C).
    8. Ressner, Ludwig & Liski, Matti & Montero, Juan-Pablo, 2010. "Corrigendum to "Forward trading and collusion in oligopoly" [J. Econ. Theory 131 (1) (2006) 212-230]," Journal of Economic Theory, Elsevier, vol. 145(6), pages 2496-2497, November.
    9. Newbery, David & Pollitt, Michael G. & Ritz, Robert A. & Strielkowski, Wadim, 2018. "Market design for a high-renewables European electricity system," Renewable and Sustainable Energy Reviews, Elsevier, vol. 91(C), pages 695-707.
    10. Ignacio Herrero, Pablo Rodilla, and Carlos Batlle, 2018. "Enhancing Intraday Price Signals in U.S. ISO Markets for a Better Integration of Variable Energy Resources," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3).
    11. Brito-Pereira, Paulo & Mastropietro, Paolo & Rodilla, Pablo & Barroso, Luiz Augusto & Batlle, Carlos, 2022. "Adjusting the aim of capacity mechanisms: Future-proof reliability metrics and firm supply calculations," Energy Policy, Elsevier, vol. 164(C).
    12. David Newbery, 2023. "Efficient Renewable Electricity Support: Designing an Incentive-compatible Support Scheme," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3).
    13. Koichiro Ito, 2014. "Do Consumers Respond to Marginal or Average Price? Evidence from Nonlinear Electricity Pricing," American Economic Review, American Economic Association, vol. 104(2), pages 537-563, February.
    14. Batlle, Carlos & Barroso, Luiz A. & Pérez-Arriaga, Ignacio J., 2010. "The changing role of the State in the expansion of electricity supply in Latin America," Energy Policy, Elsevier, vol. 38(11), pages 7152-7160, November.
    15. Banfi, Silvia & Filippini, Massimo & Mueller, Adrian, 2005. "An estimation of the Swiss hydropower rent," Energy Policy, Elsevier, vol. 33(7), pages 927-937, May.
    16. Leandro Lind & Rafael Cossent & José Pablo Chaves‐Ávila & Tomás Gómez San Román, 2019. "Transmission and distribution coordination in power systems with high shares of distributed energy resources providing balancing and congestion management services," Wiley Interdisciplinary Reviews: Energy and Environment, Wiley Blackwell, vol. 8(6), November.
    17. Eirik S. Amundsen & Christian Andersen & Jan Gaute Sannarnes, 1992. "Rent Taxes on Norwegian Hydropower Generation," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 97-116.
    18. Neuhoff, K., 2022. "Defining gas price limits and gas saving targets for a large-scale gas supply interruption," Cambridge Working Papers in Economics 2253, Faculty of Economics, University of Cambridge.
    19. Karsten Neuhoff, Sophia Wolter and Sebastian Schwenen, 2016. "Power markets with Renewables: New perspectives for the European Target Model," The Energy Journal, International Association for Energy Economics, vol. 0(Bollino-M).
    20. Richard Schmalensee, 2022. "Competitive Energy Storage and the Duck Curve," The Energy Journal, , vol. 43(2), pages 1-16, March.
    21. Olga Chiappinelli & Karsten Neuhoff, 2020. "Time-Consistent Carbon Pricing: The Role of Carbon Contracts for Differences," Discussion Papers of DIW Berlin 1859, DIW Berlin, German Institute for Economic Research.
    22. Liski, Matti & Montero, Juan-Pablo, 2006. "Forward trading and collusion in oligopoly," Journal of Economic Theory, Elsevier, vol. 131(1), pages 212-230, November.
    23. Karsten Neuhoff, 2022. "Defining Gas Price Limits and Gas Saving Targets for a Large-scale Gas Supply Interruption: Final Report," DIW Berlin: Politikberatung kompakt, DIW Berlin, German Institute for Economic Research, volume 127, number pbk180.
    24. Paul L Joskow, 2019. "Challenges for wholesale electricity markets with intermittent renewable generation at scale: the US experience," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 35(2), pages 291-331.
    25. David M. Newbery, 2005. "Why Tax Energy? Towards a More Rational Policy," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 1-40.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Pedro Linares & Tom?s G?mez San Rom?n, 2023. "An assessment of the Iberian Exception to control electricity prices," ECONOMICS AND POLICY OF ENERGY AND THE ENVIRONMENT, FrancoAngeli Editore, vol. 2023(1), pages 5-16.
    2. Diego Rodríguez Rodríguez, 2023. "Comentarios sobre la reforma del mercado eléctrico," Fedea Economy Notes 2023-07, FEDEA.
    3. Mastropietro, Paolo & Rodilla, Pablo & Rivier, Michel & Batlle, Carlos, 2024. "Reliability options: Regulatory recommendations for the next generation of capacity remuneration mechanisms," Energy Policy, Elsevier, vol. 185(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. J.P. Chaves & R. Cossent & T. Gómez San Román & P. Linares & M. Rivier, 2023. "An assessment of the European electricity market reform options and a pragmatic proposal," Working Papers EPRG2305, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    2. Neuhoff, Karsten & Richstein, Jörn C. & Kröger, Mats, 2023. "Reacting to changing paradigms: How and why to reform electricity markets," Energy Policy, Elsevier, vol. 180(C).
    3. Keppler, Jan Horst & Quemin, Simon & Saguan, Marcelo, 2022. "Why the sustainable provision of low-carbon electricity needs hybrid markets," Energy Policy, Elsevier, vol. 171(C).
    4. Sirin, Selahattin Murat & Camadan, Ercument & Erten, Ibrahim Etem & Zhang, Alex Hongliang, 2023. "Market failure or politics? Understanding the motives behind regulatory actions to address surging electricity prices," Energy Policy, Elsevier, vol. 180(C).
    5. Simshauser, Paul, 2024. "On static vs. dynamic line ratings in renewable energy zones," Energy Economics, Elsevier, vol. 129(C).
    6. Mier, Mathias, 2021. "Efficient pricing of electricity revisited," Energy Economics, Elsevier, vol. 104(C).
    7. David P. Brown & David E. M. Sappington, 2025. "The Impact of Wholesale Price Caps on Forward Contracting," The Energy Journal, , vol. 46(4), pages 253-288, July.
    8. Luo, Yilun & Ahmadi, Esmaeil & McLellan, Benjamin Craig & Tezuka, Tetsuo, 2024. "A hybrid system dynamics model for power mix trajectory simulation in liberalized electricity markets considering carbon and capacity policy," Renewable Energy, Elsevier, vol. 233(C).
    9. Milstein, I. & Tishler, A. & Woo, C.K., 2024. "The effect of PV generation's hourly variations on Israel's solar investment," Energy Economics, Elsevier, vol. 136(C).
    10. Van Moer, Geert, 2019. "Electricity market competition when forward contracts are pairwise efficient," MPRA Paper 96660, University Library of Munich, Germany.
    11. Jimenez, I. Sanchez & Ribó-Pérez, D. & Cvetkovic, M. & Kochems, J. & Schimeczek, C. & de Vries, L.J., 2024. "Can an energy only market enable resource adequacy in a decarbonized power system? A co-simulation with two agent-based-models," Applied Energy, Elsevier, vol. 360(C).
    12. Milstein, I. & Tishler, A. & Woo, C.K., 2025. "Modeling the effects of photovoltaic technology, battery storage, and electric vehicles on Israel's electricity market from 2030 to 2050," Utilities Policy, Elsevier, vol. 95(C).
    13. Mastropietro, Paolo & Rodilla, Pablo & Rangel, Lina Escobar & Batlle, Carlos, 2020. "Reforming the colombian electricity market for an efficient integration of renewables: A proposal," Energy Policy, Elsevier, vol. 139(C).
    14. Lo Prete, Chiara & Palmer, Karen & Robertson, Molly, 2024. "Time for a Market Upgrade? A Review of Wholesale Electricity Market Designs for the Future," RFF Reports 24-09, Resources for the Future.
    15. Sebastian Dullien & Isabella M. Weber, 2022. "Höchste Zeit für einen Gaspreisdeckel: ein wichtiges Instrument im Kampf gegen Energiepreisbelastung [High Time for a Gas Price Cap: An Important Instrument in the Fight Against Energy Price Burden," Wirtschaftsdienst, Springer;ZBW - Leibniz Information Centre for Economics, vol. 102(8), pages 595-598, August.
    16. Zhou, Zhi & Botterud, Audun & Levin, Todd, 2025. "Price formation in zero-carbon electricity markets – Fundamentals, challenges, and research needs," Renewable and Sustainable Energy Reviews, Elsevier, vol. 211(C).
    17. Csereklyei, Zsuzsanna & Kallies, Anne, 2024. "A legal-economic framework of wholesale electricity markets: Assessing Australia's transition," Energy Policy, Elsevier, vol. 195(C).
    18. Ansede Ferreiro, Jesús & San-Martín González, Enrique, 2025. "Turmoil in the Chilean electricity sector: A failed attempt at using advanced contracts for differences to support the energy transition?," Utilities Policy, Elsevier, vol. 93(C).
    19. Pedro Linares & Tom?s G?mez San Rom?n, 2023. "An assessment of the Iberian Exception to control electricity prices," ECONOMICS AND POLICY OF ENERGY AND THE ENVIRONMENT, FrancoAngeli Editore, vol. 2023(1), pages 5-16.
    20. Ferreira, José Luis, 2014. "Capacity precommitment, price competition and forward markets," Economics Letters, Elsevier, vol. 122(2), pages 362-364.

    More about this item

    Keywords

    ;
    ;
    ;

    JEL classification:

    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cam:camdae:2325. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Jake Dyer (email available below). General contact details of provider: https://www.econ.cam.ac.uk/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.