Renewables prices should not be linked to gas prices

(EurActiv, 4 Jul 2022) Renewable electricity prices could be decoupled from gas prices without all the market interventions European countries are currently resorting to, writes Arpad Cseh.

Arpad Cseh is the founder of Climate Moonshot, a non-governmental, non-commercial initiative focused on creating the political will for tackling climate change and aiming at reaching a world with a safe and just climate.

The pressures created by high energy prices have been greatly exacerbated by the fact that wind and solar power prices are linked to gas prices in European electricity markets. Prices paid by consumers for renewable electricity soared even though their cost has not changed.

Governments have been addressing this discrepancy through price controls, taxing windfall gains and supporting consumers. While such market interventions can relieve acute pressures in the short-term, they should not be viewed as long-term solutions as they lead to undesirable consequences. New market designs can offer better solutions.

Shortcomings of the current wholesale market design 

Under pay-as-clear market rules the price of all electricity sold in the wholesale market is determined by the most expensive unit of energy.

This approach offers important benefits and has served the electricity system dominated by dispatchable generators and significant variable costs well, ensuring efficiency as generators respond to price signals.

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EurActiv, 4 Jul 2022: Renewables prices should not be linked to gas prices