European Union Urged to Rethink the Structure of its Energy Markets

Ten energy companies wrote to policymakers that Europe needs to increase grid flexibility


Energy storage company Fluence Energy and nine other energy market organizations have written to European policymakers to rethink the structure of European energy markets and the REPowerEU plan.

In a letter, they outlined why Europe needs a rapid rollout of technologies to increase grid flexibility and strong targets and policy frameworks to encourage the near-term adoption of these technologies.

What is the REPowerEU plan?

REPowerEU plan is the European Commission’s plan to make Europe independent from Russian fossil fuels well before 2030, considering Russia’s invasion of Ukraine. The plan sets out a series of measures to rapidly reduce dependence on Russian fossil fuels and fast forward the green transition while increasing the resilience of the EU-wide energy system.

The signatories highlighted the urgent need to rethink the structure of European energy systems in light of the current geopolitical situation across the continent, combined with high dependency on imported natural gas and growing electricity demand.

The companies argued that for this plan to be successful, it must be accompanied by adequate targets and policy frameworks to deploy energy storage and other flexibility technologies. They were necessary to enable renewables’ safe and efficient integration into the electric grid.

While welcoming REPowerEU Plan, the signatories said that if the accelerated near-term deployment of renewable energy sources was to be successful, Europe needed a rapid rollout of proven and scalable technologies to increase grid flexibility and enable the safe and efficient integration of renewable generation.

To this end, battery-based energy storage was a quickly deployed, cost-effective, and low-emissions solution with the potential to become a backbone of modern, resilient, and decarbonized energy systems. Other technologies, such as demand side response, the improved utilization of existing storage potential of pumped hydroelectric, and other energy storage technologies, as well as the interconnectivity between national electricity markets, were all critical to enabling the European energy transition, they said.

The companies believe that battery-based energy storage can enhance network stability and ease congestion on transmission lines, reducing renewable curtailment and its high costs. It can provide capacity and ancillary services that balance supply and demand, often more efficient and cheaper than other technologies. It can also limit price volatility and, thereby, the overall electricity cost in the wholesale energy markets through energy arbitrage.

The signatories argued that the European energy market should be designed to provide clear price signals to generators and customers in line with the system’s needs at any moment in time. Energy prices should be low at times of high renewable generation and higher during periods of low generation. Similarly, the cost of using the grid should be higher when it is congested, providing price signals to local generation and consumption that helps to lower the congestion on the grid.

The signatories also suggest that the carbon intensity of peaking power plants needs to be addressed in capacity market design and through new policy measurements such as clean peaking standards. Grid connections for energy storage should be prioritized. Introducing flexible connection agreements in congested areas can speed up the integration of storage, which in turn can help reduce congestion based on market signals.

The group argued that the existing barriers to storage in national markets, such as charging of fees, levies, or taxes were not cost-reflective and disadvantageous to storage technologies.

The European Commission is investing €1.8 billion (~$1.804 billion) in 17 large-scale innovative clean energy projects worldwide. The investment is part of the second call of the Commission’s Innovation Fund with a 60% increase in the budget. The 17 selected projects will bring breakthrough technologies in energy-intensive industries, hydrogen, renewable energy, carbon capture, and storage infrastructure, and manufacturing key components for energy storage and renewables.

Last month, the EU provided £2.4 billion (~$2.405 billion) to seven European nations to modernize energy systems, reduce greenhouse gas emissions and support them in meeting their 2030 climate and energy goals. Under the program, funds will be provided for eight solar parks in Romania.