Market-based mechanisms for Energy System Integration
The main mechanisms currently in place
Currently, the links in the energy sector between energy carriers (electricity, gas, heat) and between them and the consuming sectors (industry, buildings, transports) are limited.
The market and regulatory rules are designed separately.
Beyond the current electricity and gas market designs, the main market-based mechanisms currently in place are:
Emission Trading Scheme - ETS: the ETS currently applies to power generation and heavy industries only. CO2 and greenhouse gas emitting sectors such as shipping are left out.
Guarantees of Origin: as part of the Clean Energy Package, the “Recast Renewable Energy Directive" (2018) has extended the scope of guarantees of origin from 'electricity produced from renewable sources only' to 'gases produced from renewable and decarbonised sources, including hydrogen'. Discussions on whether the scope should be broadened in terms of energy/vectors, but also in terms of functions, are ongoing.
Storage: the “Recast Renewable Energy Directive" (2018) has clarified the definition of energy storage for electricity, which now also includes power-to-gas installations.
Flexibility markets: mainly focused on electricity (intraday, balancing, reserves). Currently a “circular economy approach" is missing (i.e. waste-to-energy).
Bidirectional energy flows: the current electricity and gas demand side response mechanisms mainly involve big energy intensive companies. A more distributed generation/consumption approach is often missing.
One of the key elements of the European Commission Communication “Powering a climate-neutral economy: An EU Strategy for Energy System Integration" is to make energy markets fit for decarbonisation and distributed resources.
The European Commission plans to achieve this by:
Promoting a level-playing field across all energy carriers - by, among others, issuing guidance to Member States aligning non-energy price components across energy carriers, a possible proposal for the extension of the ETS scheme to new sectors, the revision of the Energy Taxation Directive
Reviewing the legislative framework to design a competitive decarbonised gas market which can easily integrate renewable gases
Improving customer information
Studies and impact assessments will be carried out in the next months and will contribute to the EC legislative revisions to be proposed by June 2021.
The Agency is closely following the discussion at European level on the topic of Energy System Integration, given the vast economic, health and social benefits and positive externalities to be brought by its efficient and effective implementation to the European and global citizens. As such, this section will be regularly updated with the latest and most relevant findings.