The European electricity market is facing pressure to lower carbon emissions, which increases costs for suppliers and consumers. Currently, the EU imposes carbon pricing on suppliers based on how carbon intensive their energy production is. However, electricity suppliers indicate this system is not providing enough financial support for investments in lowering carbon. Suppliers need to reduce carbon emissions significantly by 2040 but fossil fuels still dominate electricity generation. Wholesale electricity prices are low and declining, reducing the value of power plants and profits, making investments in low-carbon technology difficult. Major electricity suppliers are calling for reforms to the European electricity market, including establishing a carbon price floor and a capacity mechanism, to encourage investments needed to meet climate targets while maintaining a secure energy supply.

1. Reforming the European Electricity
Market
Europe wide,we enjoyacompetitive electricitymarket.This meansthatdifferentprovidersare at
libertytocompete onprice andservice withotherbusinessesinthe sector,togive usa choice over
whowe endup buyingour electricity from.While thisisagoodthing,the marketisconstantlyunder
pressure toloweritscarbon emissions,whichmeansmore costto our suppliers,whichisinevitably
goingto filterdowntous,the consumer.
In orderto minimise the impactonthe consumer,while still providingsignificantleverage onthe
energysuppliers,the EUcurrentlyimposescarbonpricing,where suppliersare taxedorfinedaset
amountbasedon howcarbon intensivetheirenergyproductionprocessesare.Believeitornot,
energysuppliersare actually verykeentode-carbonise theirgenerationprocesses,butsofar they
are findingthatthe EU systemisnot providingwhattheyneedintermsof financial support.
What do suppliers need to do?
In the energysector,currentagreementsasksupplierstoreduce theircarbonemissionsfroman
average of 411kg per kWh down to63kg per kWhby the year 2040 (1).However,currentindications
are that,despite effortstochange the mix radically,the electricitymix is stilldominatedbyfossil
fuels,withthemmakinguparound47.9 per centof our electricity generationfueltoday (2).
So what’s the problem?
Reformsare alreadyhappening,andmostlyfromgrassrootsupwards,withnomotivationfromthe
powersthatbe to reallyspeakof.Renewablesare acceleratingingrowthnaturally,assuppliersfight
to meettheircarbonreductiontargets,anddemandisslowingandevenstagnating, asconsumers
learnthe benefitsof energyefficiencyintheirownhome.
However,there isanother,more concerninginfluencingfactoratplayhere.The currentwholesale
electricitypricesinEurope are lowand still declining(3).The currentsystemof carbon taxationto
make investmentsmore profitable will onlycontinuetoworkif the companiesinvolvedstay
profitable themselves.Becausepricesare changinginthe wholesale market,the capital for
investmentinlowcarbontechnologyisjustnotthere.
What do the suppliers think?
As electricitypricesstarttoplummet,sotoodo the valuationsof our‘bigsix’ energysuppliershere
inthe UK. Germanbased E.On,despite profitsinitsUKdomesticenergyarm (4),have had a tough
time overall.The reductioninwholesale electricitycostshave seenthemforcedtowrite downthe
value of theirpowerplants,andtopost itsbiggestquarterlylossinthe monthsendingSeptember
30th
2015 (5).
TheirChief Financial Officer,Michael Sen,commentedinaninterview:
“Half a yearago, the worldlookeddifferent.The underlyingconditionshave worseneddramatically…
Thishas unavoidablyreducedthe opportunitiestoearnmoney.”
He alludedtothe closingof E.On’spowerplantsasa mitigatingmeasure too:
“If powerplantsfail tomake moneyfora sustainedperiodof time,we mustandwill act,”Sensaid.

2. One of the UK’s largestenergysuppliers,EDF,have publicallycalledfora radical and rapid reformto
the structure of the electricitymarketinEurope inordertoallow fornew investments infuture
generatingcapacity.
TheirChairmanand CEO, Jean-BernardLévy,attendedarecentEU Energy Summit,where all the
majorplayersfromthe Europeanenergysupplierswere presenttodiscusscurrentmarketsandthe
possibilityof reform.He personallystressedthe needfora ground-breakingreformof the electricity
marketinEurope,in particular:
 To establishaworkable price floorfor CO2, whichwill encourage investmentinnew
generationfacilitiesandin non-fossilfuelsinparticular.Theirestimates calculatedthatthis
wouldbe achievedwithaprice of around€30 to €40 per tonne of CO2.
 To promote a mechanismforenergygenerationcapacitywhichwouldgiveEurope the
securityof supply itneedsina time of marketturbulence (6).
Electricity marketreformsinEurope are certainlyonthe mindsandinthe mouthsof manyof our
continentsgreatdecisionmakers.Whatcomesoutof these discussionsremainto be seen,butitis
hopedthatany reformsthatare implementedoverthe nextfew yearswillbe beneficial notonlyto
our suppliers andourownpersonal bills,butalsotoour planetandto the future of ourhealthand
sustainabilityasaspecies.
References
1. [Online]http://bruegel.org/events/re-powering-electricity-markets/.
2. [Online]http://www.eea.europa.eu/data-and-maps/indicators/overview-of-the-electricity-
production/assessment-2.
3. [Online]http://www.telegraph.co.uk/bills-and-utilities/gas-electric/falling-energy-prices-this-
is-the-best-way-to-take-advantage/.
4. [Online]http://www.eon.com/en/about-us/publications/annual-report.html.
5. [Online] http://www.bloomberg.com/news/articles/2015-11-11/eon-9-month-profit-falls-30-
amid-german-power-plant-writedowns.
6. [Online]https://www.edf.fr/en/the-edf-group/dedicated-sections/press/all-press-releases/edf-
supports-eu-initiatives-to-reform-the-european-electricity-market-model.