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EUROPEAN WORKSHOP ON DRIFTING APART? COSTS, PRICES AND TARIFFS IN EU ELECTRICITY MARKETS

WEDNESDAY, 09 JULY, 2014
Université Paris-Dauphine
Salle Raymond Aron
2nd Floor


SUMMARY RECORD
Click here


Summary
The costs of generating electricity in Europe are increasingly de-correlated from wholesale prices in European power markets. The costs of thermal generation are stable or increasing and while d renewable technologies have seen some decline in their capital costs they are still not cost competitive. However due to massive subsidisation mainly in the form of feed-in tariffs, wind and solar PV now provide increasing amounts of electricity, which due to their low marginal costs exerts downward pressure on prices in electricity wholesale markets. Average prices in the Franco-German EPEX Spot day-ahead market are now 50 % below their level in 2008. This has serious impacts on investment, security of supply and plant availability. During the past two years, around 30 GW of gas-fired generation capacity have shut down as wholesale prices no longer cover fixed operating costs, let alone financing charges.
Electricity retail prices which include the cost of electricity production, the added costs for RES-E support as well as the costs for new investments in transportation and distribution grids, have the increasingly difficult task to provide electricity companies with the revenues they need while remaining at socially and politically sustainable levels. In general, retail tariffs are today significantly above wholesale market prices but significantly below the full costs of electricity generation. This is the result of a distorted wholesale market as well as of politics, as several European countries, including France, have maintained regulated tariffs below costs for political reasons. Facts, however, are tenacious. One can hide rising costs only for so long. Either generators revenues will have to rise or European electricity systems will have to learn to live with permanently lower levels of investment and hence decreased security of supply. The situation is further complicated by a number of factors:

• Long lead-times for investment and the long lifetimes of generation equipment make cost accounting difficult. So investment short-falls resulting from too low wholesale prices may display their full effects only with a lag of several years.

• The subsidised costs of renewable energy do not show up in wholesale prices but are borne by certain customer groups through an out-of-market levy. This can cause important distributional effects between different industries and households.

• The intermittency of wind and solar PV causes a number of additional costs at the system level for investment in distribution, transport, and new back-up equipment as well as for balancing in the operation of the system. These costs are currently borne by TSOs, DSOs and consumers, but not by the producers of variable electricity who generate them.

• Current carbon prices do not promote investment in low carbon equipment. Currently, the only manner to trigger investment in capital-intensive low-carbon technologies is through feed-in tariffs or long term contracts such as the proposed CfDs in the UK electricity market. This further weakens the price signal of wholesale market for adequate levels of capacity.

In this situation, the Chaire European Electricity Markets (CEEM) is organising an international workshop on the costs, wholesale prices and retail tariffs for electricity. It will bring together experts from academe, industry, regulators and international organisations to discuss the potential dangers of the current disconnect between energy prices, operators’ revenues and costs as well as some possible solutions, which include capacity remuneration mechanisms (CRM) to complement the revenues of generators and ensure security of supply.


SLIDES

14h00-14h15 Welcome and Introduction
The Economics of Costs, Prices and Tariffs in Electricity Markets
Jan Horst KEPPLER (Professor of Economics, Université Paris-Dauphine and Chaire EEM)
Presentation


14h15-14h50
Session 1 The Discrepancy between Generation Costs at the System Level and Wholesale Prices


How RES-E Production Has Altered Wholesale Market Prices in the Market of EPEX?
Aymen SALAH ABOU EL-ENIEN (Quantitative Market Analyst, EPEX SPOT)
Presentation

Out-of-Market Financing of Renewables in EU Countries: Who Pays for the Extra Cost?
Fabien ROQUES (Consultant at Compass Lexecon and Chaire EEM Associate Researcher, Université Paris-Dauphine)
Presentation


14h50-16h00
Session 2 The Disconnect of Retail Tariffs from Wholesale Market Prices in Key European Markets


The Spanish Political Economy of Retail Electricity Tariff-Setting
Carlos BATLLE LOPEZ (Professor of Energy Economics and Regulation, Comillas University- Madrid, and MIT)
Presentation

Aligning a Mix of Retail Tariffs, Regulated and Unregulated Wholesale Prices with the Costs of Production: The Case of France
Julien TOGNOLA (MEDDE - General Direction/ Energy and Climate Change, French Ministry of Environment (DGEC))
Presentation

Retail Price Freezes, Vertical Integration and CfDs: Which Role for the Wholesale Market in the UK?
Neil BUSH (Deputy Director, Department of Energy and Climate Change, UK)
Presentation


16h00--16h30 Coffee and Tea


16h30-17h30
Session 3 The Way Forward: Moving Prices and Tariffs Closer to Cost



Better Markets: Exposing Variable Generators to Markets and Internalising their System Costs
Julian BARQUIN GIL, Endesa (Enel Group)
Presentation

Better Frameworks: Correcting Definitive Price-Cost Discrepancy by Complementing and Guaranteeing Generators’ Revenues
Dominique FINON (Scientific Counsellor, Chaire EEM)
Presentation


17h30-18h00 Concluding Roundtable
Thomas VEYRENC (Director, Markets Department, RTE), Marc BUSSIERAS (Head of Economy, Corporate Strategy and Prospective, EDF), Philippe VASSILOPOULOS (Head of Product Design, EPEX SPOT), Audrey ZERMATI (Associate Deputy General, UFE).

18h00-19h00 Reception (Hall of 2nd floor, across from Salle Raymond Aron, Paris- Dauphine)



For more information, please contact the Coordinator of the CEEM:
Fatoumata Diallo
fatoumata.diallo@fondation-dauphine.fr
Fondation partenariale Paris-Dauphine
Place du Maréchal de Lattre de Tassigny-75116 Paris Cedex
Tél. +33 (0)1 44 05 45 54

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