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Begin New Search Topic Energy Crisis Author Georg Zachmann

1. Unity in power, power in unity: why the EU needs more integrated electricity markets

Author:
Georg Zachmann, Carlos Batlle, Francois Beaude, and Christoph Maurer
Publication Date:
02-2024
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
The energy crisis that started in 2022 reminded European governments of the resilience provided by relatively well-integrated European electricity markets, which have been painstakingly built-up over several decades. European Union leaders thus decided to reverse a creeping energy renationalisation and to invest in completing the internal market. However, there are some indications that this momentum is being lost, with different EU capitals taking different lessons from the energy crisis, at a time of unprecedented investment needs in generation and grids across the EU. The multiple benefits of enhanced EU energy-market integration should be emphasised. ‘Techno-economic’ benefits can be secured from optimising the design and operation of several national electricity systems jointly, rather than individually. These benefits will increase massively with higher shares of renewables and include less fossil-fuel burn and less volatile short-term prices, cost savings through harnessing regional renewables advantages, reduced need for expensive back-up capacity and flexibility, and enhanced resilience to shocks. In addition, greater energy-market integration will trigger benefits of a more managerial-governance related nature, though these are harder to quantify. They include benefits in terms of competition, innovation and credibility, which are particularly useful in the electricity sector, which typically faces rather long investment times and high degrees of concentration in purely national markets. Further market integration requires substantial political investment. Governments will need to deal with significant distributional effects within and between countries. Experience has shown that domestic political constraints in this respect are often numerous and difficult to overcome. Therefore, achieving the benefits of integration will require a vision on what degree of integration is feasible and desirable, and how to properly implement and govern it. It will also require an honest acknowledgement of the implications and costs of not pursuing greater integration.
Topic:
Markets, European Union, Regional Integration, Electricity, and Energy Crisis
Political Geography:
Europe

2. Europe’s under-the-radar industrial policy: intervention in electricity pricing

Author:
Ben McWilliams, Giovanni Sgaravatti, Simone Tagliapietra, and Georg Zachmann
Publication Date:
01-2024
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
The different ways in which European Union member-state governments add levies to the price of electricity creates huge discrepancies in the prices paid by consumers. Europe’s energy transition depends upon increasing electrification of the economy and increasing the share of that electricity produced by renewable sources. Both factors raise the importance of electricity taxes set by governments. The energy crisis drew attention to this: as electricity prices soared, governments responded with billions of euros in subsidies to protect households and companies. While the acute phase of the energy crisis has passed, growing concerns about industrial competitiveness create political pressure for governments to continue with such subsidies or tax exemptions. High profile examples include the French reform of nuclear-power generated electricity pricing, and a political debate in Germany over how aggressively to subsidise the electricity price paid by energy-intensive firms. We frame the debate on intervention in electricity pricing around five distributional dilemmas concerning the recuperation of electricity expenses: 1) whether to raise general or electricity taxes, 2) the split between household and companies, 3) the split between energy-intensive and non-energy intensive companies, 4) cross-border effects, and 5) trade-offs in attracting new clean-technology manufacturing factories. Priorities according to these distributional criteria will differ by country, but these factors should be central to discussions. Governments must recognise that efforts to lower prices artificially for one group of consumers will raise prices for others, including with cross-border implications. The current compromises in the French and German cases do not pose substantial issues to the integrity of the European single market and do not penalise non-energy-intensive domestic consumers excessively.
Topic:
Industrial Policy, European Union, Electricity, Price, and Energy Crisis
Political Geography:
Europe