EU market needs to be “re-powered”, says IEA

The International Energy Agency (IEA) published in February 2016 a milestone report entitled Re-powering Markets – Market design and regulation during the transition to low-carbon power systems. The report highlights the fact that the European Union’s electricity market needs to be reformed in such a way as to incentivise investment in low-carbon technologies – renewables and nuclear power – through the introduction of appropriate price signals. In this respect, the IEA report is in line with FORATOM’s response to the EC market design consultation published on 7 October 2015.

The IEA acknowledges that low-carbon investments are capital-intensive and that their cost structure does not fit well with short-term marginal cost pricing. They add that “electricity prices are too low to recoup the investment costs of any low-carbon technology, including renewables and nuclear”. IEA states that a high and robust carbon price is needed, but they also recognise that this will take time to achieve and will not on its own enable low-carbon generation to be deployed quickly enough to meet 2030 decarbonisation objectives and replace retiring capacity. What is required, IEA suggest, is a responsive market mechanism for providing long-term revenue certainty for low-carbon investors, in place of existing technology-specific support schemes.

FORATOM’s Director General, Jean-Pol Poncelet, said that he looked forward to seeing what the European Commission would propose at the end of 2016 under their New Electricity Market Design initiative. He commented: “The EC would be well advised to take a careful look at what the International Energy Agency is recommending with regard to market design and hopefully take their recommendations on board. It is worth noting that IEA is also saying that the world’s nuclear generation capacity will need to more than double in the next 35 years if global temperature increases are to be kept below 2°C”.