Electricity market reform

Commissioned by European Parliament

Lion Hirth, Ingmar Schlecht, Jonathan Mühlenpfordt, Anselm Eicke

With Bruegel

2023

In March 2023, the European Commission proposed a reform of the EU electricity market, sparking debate over CfDs, PPAs, price caps, and peak shaving. Together with Bruegel, we assessed the proposals for the European Parliament’s ITRE committee. Based on a quantitative model of contractual arrangements, we evaluated the market design against the criteria of operational efficiency, fairness, and smart investment. Key recommendations: consumer protection should not blunt short-term price incentives, long-term contracts such as CfDs must preserve operational efficiency, and excessive tinkering with flexibility incentives should be avoided.