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Time to establish a ‘European Central Energy Bank’

(EurActiv, 4 Oct 2021) To deal with the current instability in energy prices and accelerate the green transition, there is a need for a central energy authority acting similar to modern central banks in money markets, argues Mike Parr.

Mike Parr is the founder of PWR, a consultancy specialising in power systems.

The dramatic rise in gas prices from circa €20/MWh earlier this year to the current €60/MWh impacts electricity prices (see table) because most EU member states still have some gas-powered generators. For example, such generation accounts for 7% of output in Germany through to 20% in Spain.

Electricity wholesale prices, which usually vary between €30/MWh and €50/MWh, are now in the range of €100/MWh to €200/MWh. This rise will, inevitably, feed through to a rise in retail prices paid by consumers.

Politicians have reacted with concern to these events. The Spanish sent a letter to the European Commission urging the EU to take action. The annexe argued for reform of the wholesale electricity market. The paper hints at some understanding of where the EU stands in the energy transition and the impacts this could have on price.

However, it fails to see the bigger transition picture, and its proposals address symptoms rather than causes of the current energy market failure.

In an article published by EURACTIV in January this year, I argued for urgent market reform on the basis that electricity markets as currently constituted are inherently unstable (small changes in inputs cause very big changes in price). Later in the year, the need for urgent reform was proposed to a very senior energy regulator. The latter refused to acknowledge the need for urgent reform.

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EurActiv, 4 Oct 2021: Time to establish a ‘European Central Energy Bank’