Brussels,

Electricity Market Design

The EU’s electricity market redesign aims to construct a grid that is cleaner, more resilient, and consumer-friendly by blending renewables, long-term contracts, active participation, and stricter oversight—all while saving billions across the bloc.

• The EU electricity market is engineered to support the clean energy transition, reinforce energy security, and ensure affordable prices for consumers by fostering competition and enabling active consumer engagement 
• It’s estimated that the integrated internal energy market saves Europeans €34 billion annually, and deeper integration by 2030 could boost savings to €40–43 billion

Current state

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• In 2022, renewables (mainly solar and wind) accounted for 41.2% of EU electricity consumption; the goal is to exceed 60% by 2030.
• To scale up renewables, markets must attract investment in flexible technologies (e.g., demand‑response, storage) and empower consumers to aid grid stability 
• Ensuring market transparency, fair competition, and protection from abuse is essential—especially after recent price shocks in 2022

The 2023–2025 Reform

• The European Commission proposed reforms in March 2023 under the Green Deal Industrial Plan, aiming to boost renewables, protect consumers, and support EU industrial competitiveness
• On 21 May 2024, the EU formally adopted key legal acts--Directive (EU) 2024/1711 and Regulation (EU/2024/1747)—taking effect on 16 July 2024.
• On 2 July 2025, the Commission released recommendations  and 3  implementation guidance for EU Member States: 
  • Communication on future proof network charges for reduced energy system costs
  • Communication on the establishment of areas for grid and storage infrastructure
  • Communication on innovative technologies and forms of renewable energy deployment

​Key objectives of the directive include:

• Decouple consumer prices from volatile hourly wholesale rates by encouraging long-term contracts (e.g., PPAs, two-way CfDs) Energy.
• Enhance market integrity via stronger role for ACER in cross-border investigations, improved reporting, LNG price benchmarks, and better tracking of non-EU firms​​

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• Strengthening consumer protections: Ensuring that consumers have access to fixed-price and dynamic electricity contracts, with clear information on terms and conditions.
• Enhancing market stability: Encouraging suppliers to adopt appropriate hedging strategies to mitigate financial risks associated with price fluctuations.
• Promoting renewable energy integration: Facilitating the deployment of renewable energy sources and supporting infrastructure to achieve climate neutrality goals.
• Improving grid flexibility: Introducing provisions for flexible connection agreements to better manage electricity supply and demand.

The directive entered into force on 16 July 2024, with Member States required to transpose its provisions into national law by 17 January 2025 and fully implement them by 17 July 2026.
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Legal foundation

The Reform amends::
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1. Directive on Electricity:- Directive EU/2019/944 establishes common rules for the internal market for electricity, placing consumers at the center of the clean energy transition. It enables active participation and provides a robust framework for consumer protection. 
2. Regulation on Electricity:- Regulation EU/2019/943 governs the internal market for electricity, ensuring electricity can move freely to where it is most needed. This facilitates cross-border trade and competition, benefiting society.
3. REMIT Regulation (EU/1227/2011) for tighter market abuse prevention
4. Regulation on Risk Preparedness: - The Regulation (EU) 2019/941 focuses on preparing for and managing risks in the electricity sector to ensure a stable and secure energy supply.
5. ACER Regulation: - The Regulation (EU) 2019/942 strengthens the role of ACER, enhancing cooperation among national energy regulators and ensuring the smooth functioning of the internal energy market.
6. Renewable Energy Directive (EU/2018/2001), further amended on 20 November 2023
   

Key Benefits

• Consumer Empowerment: The legislation prioritizes consumer involvement and protection, enabling them to actively participate in the energy market.
• Flexibility and Renewable Integration: The rules support the European Green Deal by providing the necessary flexibility to integrate a higher share of renewable energy into the grid.
• Economic Growth: By fostering cross-border trade and competition, these rules contribute to the creation of green jobs and economic growth.

Regulation on risk preparedness in the electricity sector

The Regulation EU/2019/941 on Risk Preparedness in the Electricity Sector  mandates EU countries to develop plans to address potential future electricity crises. These plans must include tools for prevention, preparation, and management of such situations.

Background and Necessity

• Independent Report (May 2015): Highlighted that EU countries often focused on national contexts during crises, neglecting cross-border impacts, which sometimes worsened the crisis, undermined the market, and increased energy costs.

Key Requirements

1. Crisis Scenario Identification: EU countries must use common methods to identify all potential electricity crisis scenarios at both national and regional levels.
2. Risk Preparedness Plans: Plans must be based on identified scenarios and emphasize cooperation and coordination among EU countries, fostering a spirit of solidarity.
3. Cross-Border Considerations: The regulation ensures that countries consider cross-border impacts in their planning to avoid exacerbating crises.
4. Monitoring Framework: Establishes a systematic approach for monitoring security of supply issues through the Electricity Coordination Group.

The Agency for the Cooperation of Energy Regulators (ACER)

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First established in 2009 under Regulation 713/2009 and further strengthened by Regulation (EU) 2019/942, the Agency for the Cooperation of Energy Regulators (ACER) is an independent body that promotes the integration and completion of the European internal energy market for electricity and natural gas.

Key Responsibilities of ACER
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1. Coordination of National Regulators: Facilitates the coordination of actions among national energy regulators at the European level, including making binding decisions when national regulators cannot agree.
2. Development of Common Rules: Works on creating common network and market rules.
3. Participation in Initiatives: Engages in regional and cross-regional initiatives to enhance energy market integration.
4. Market Monitoring: Supervises market activities to combat market manipulation and protect market participants and consumers.
5. Advisory Role: Provides advice to EU Institutions on matters such as trans-European energy infrastructure development and security of supply.

Decision-Making Process

• ACER’s Director: Adopts decisions, recommendations, and opinions.
• National Regulators’ Involvement: National regulators are involved through ACER’s working groups, and significant decisions require the approval of two-thirds of national regulators in ACER’s Board of Regulators.

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REMIT Regulation

​The Wholesale Energy Market Integrity and Transparency (REMIT) Regulation EU/1227/2011 ensures the integrity of electricity and natural gas markets, promoting fair and competitive prices based on supply and demand, and preventing profits from market abuse.

Key Aspects of REMIT
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• Market Confidence: Ensures that consumers and market participants trust in the integrity of energy markets.

 

• Fair Pricing: Guarantees that prices are competitive and reflective of true supply and demand dynamics.

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• Prevention of Market Abuse: Prohibits profits derived from market manipulation or insider trading.

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Reporting and Monitoring

• Transaction Reporting: Market participants must report all wholesale energy market transactions to ACER.
• Data Collection and Monitoring: ACER is responsible for collecting and monitoring all relevant trading data in the European wholesale energy markets (electricity and natural gas).

Enforcement and Coordination

• Enforcement Decisions: The relevant regulatory authority is responsible for making the final enforcement decision when a REMIT breach is identified.
• ACER’s Role: ACER coordinates the follow-up of potential REMIT breaches to ensure consistent decisions across Europe.
• Collaboration: ACER works closely with the European Securities and Market Authority (ESMA) and other financial, competition, and relevant authorities.

Energy pricing models

​The EU electricity market consists of various players in the supply chain, including producers, suppliers, and end-consumers. The market operates on a system of marginal pricing, also known as a pay-as-clear market.

How Marginal Pricing Works

• Uniform Pricing: All electricity generators receive the same price for the power they sell at any given moment.
• Bidding Process: Electricity producers bid into the market based on their production costs. Renewable energy, having zero production cost, is always the cheapest and is bid first.
• Demand Fulfillment: The market buys electricity from the cheapest sources first, continuing until demand is met. The price is set by the last producer whose electricity was needed to meet total demand.

Advantages of Marginal Pricing

• Efficiency: Ensures that the cheapest electricity is used first.
• Transparency: Provides clear insights into the true costs of energy.
• Cost Incentives: Encourages producers to keep their costs low.
• Consumer Benefits: Offers a transparent model that can incentivize individuals to generate their own electricity.

Comparison with Pay-As-Bid Model

• In a pay-as-bid system, producers would bid at the price they expect the market to clear, which wouldn't necessarily result in cheaper prices.

Consensus
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• The marginal pricing model is widely considered the most efficient for liberalized electricity markets and was already in use in most EU countries before being formalized in EU legislation.