Amprion market report: European cooperation absorbs upheaval in the electricity market
- Electricity market under stress, especially in Q4 2021.
- European market integration absorbs effects.
- Targeted grid expansion measures and further development of market design necessary.
2021 proved a challenging year for the European electricity market: electricity prices on Germany’s spot markets quadrupled, while gas prices increased almost sevenfold. “This continuing volatility is presenting consumers with significant challenges,” says Dr Hans-Jürgen Brick, CEO of Amprion GmbH. “However, our 2022 market report also shows that the integration of the European electricity markets counteracts such turmoil.”
This development of market integration continued despite last year’s difficult market environment. Among other aspects, this is demonstrated by the high level of price convergence in the Central Western Europe (CWE) region (Germany, France, Luxembourg, the Netherlands, Belgium and Austria), which remained at the previous year’s level in spite of the high prices at the end of 2021. This enabled the electricity price in the CWE market region to develop freely and allowed electricity to be traded without constraints. Buyers on the exchanges therefore paid the same low price for electricity.
Amprion’s market report also indicates that the expansion of the necessary grid structure is a crucial factor for European electricity market integration. “Grid expansion therefore remains our top priority,” says Amprion’s CEO Brick. “In achieving it, we have to give consideration to the needs of both the grid and the market,” adds Brick.
Grid expansion central to success
The extent to which the grid is the limiting factor is shown by power transmission in the CWE region. Sufficient capacities for transporting inexpensive electricity from one market region to another were only available for half of the time in 2021, but restrictions were in place during the other half of the year. On the electricity exchange, this implied a higher price to be paid in one market area compared to its neighbouring region. The average price spread in Q4 was around 25 euros per megawatt hour.
The market design must continue to be developed
One of the conclusions drawn by the report is that the electricity market and the European transmission grid will have to be jointly thought through and evolved more extensively in the future. Amprion has therefore developed a concept for a new market design that could also put the right incentives in place in Europe. In what is called the system market, modular markets are used both to stimulate the necessary generating plants and also to set allocation signals so that they are implemented in locations which are beneficial to the system. The market design also ensures a supply of system services that are necessary for stable grid operation.