"Built patiently over 30 years, Europe's integrated electricity market is one of the great success stories of EU energy policy, generating €30–40 billion a year in economic value for Europe as a whole, compared to standalone national systems (ACER). Building on the progress made under the previous mandate, notably the Electricity Market Design regulation, and in the wake of the Draghi report, now is the time to give this integration fresh momentum.

This means strengthening long-term price signals and the liquidity of the instruments behind them, while completing the work on a unified European capacity market and on guarantees of origin that are genuinely credible."

Pierre Jérémie, Senior Fellow - Energy at Institut Montaigne

"Preserving an optimized electricity mix while decarbonizing it is essential to Europe's competitiveness, and this cannot be achieved by focusing on generation alone. Europe needs a regulatory and economic framework that allows the flexibility required for such optimization to actually emerge. This is a necessary condition for the success of electrification policy."

Maxence Cordiez, Senior Fellow - Energy at Institut Montaigne

Financing decarbonization at the lowest possible cost to public finances

The energy transition will require hundreds of billions of euros in investment, at a time when public budgets are more constrained than ever. In France alone, long-standing support for renewable energy has already cost between €113 and €167 billion since the 2000’s. With low-carbon technologies, both nuclear and renewable, now mature, Institut Montaigne advocates a pragmatic shift: transferring part of this financial burden, and the risk that comes with it, to private markets, in order to durably ease the strain on public spending.

To bring about this shift, the paper sets out several key contractual solutions:

• Standardizing PPAs: Harmonize long-term bilateral power purchase agreements at the European level to facilitate their adoption.
• A European capital shield: Establish a risk-guarantee mechanism against buyer default in order to harmonize the cost of capital. 
• Generalizing the pro-rata method: Introduce hybrid tenders to encourage producers to sell part of their electricity to the private sector.
• Recourse to synthetic hedges: Allow Member States to auction subsidized electricity in order to move the cost of legacy debt off public budgets.
• Pooling support for existing capacity: Fund the current fleet of installations, nuclear and renewable alike, at an aggregate level rather than plant by plant.
  
   

Price transparency: giving consumers the means to adapt their consumption

The current market for Guarantees of Origin (GOs), intended to give a clear indication of low-carbon energy consumption, is in practice disconnected from physical reality. It allows suppliers to market a “100% green” tariff  in the depths of winter using certificates purchased cheaply in Norway the previous summer, without a single green electron actually being consumed.

To put an end to this “green illusion”, Institut Montaigne calls for two flagship measures:

• Mandatory hourly traceability: Require that the origin of electricity be tracked hour by hour and indexed to actual interconnection capacity, obliging suppliers to demonstrate the precise low-carbon origin of their offer at all times.
• An end to rigid time-of-use pricing: Divide the day into four consistent periods, morning, afternoon, early evening, and night, to better align pricing with the rhythm of renewable generation.
  
   

Guarding against the risk of blackouts: Europe must build a unified power reserve

With the growth of intermittent renewable energy, the short-term market alone is no longer sufficient to guarantee supply security and preventing blackouts . In response, Europe's major economies have each deployed their own national mechanisms to remunerate available capacity, in an uncoordinated manner that artificially inflates overall costs.

Institut Montaigne therefore proposes Europeanizing this security of supply through a single, mandatory capacity market, centralized at the continental level, enshrined in EU law, and overseen by the regulator, ACER.

The proposed framework rests on three pillars :

• The exclusion of fossil fuels: Eliminate the national strategic reserves that artificially keep coal and gas plants in operation.
• A single, neutral daily registry: Certify all decarbonized solutions, extended nuclear operation, renewables, batteries, and industrial demand response, on a strictly equal footing.
• Automatic cross-border assistance: Merge national capacity markets to trigger immediate solidarity between countries in the event of strain on the grid.

Read the full three-part series: