COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS Short-Term Energy Market Interventions and Long Term Improvements to the Electricity Market Design – a course for action
Date: 2022-05-18
Institutions: Directorate-General for Energy, European Commission
Subjects: EU energy policy, consumer protection, electrical energy, energy crisis, energy supply, gas industry, market intervention, price increase, price of energy, security of supply, self-sufficiency in energy

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 18.5.2022  COM(2022) 236 final  COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS Short-Term Energy Market Interventions and Long Term Improvements to the Electricity Market Design – a course for action                    
 
 
1.  Introduction 

Over the recent months, electricity prices in Europe have rapidly risen to a level much higher 
than  in  recent  decades.  This  dynamic  is  intrinsically  linked  to  the  high  price  of  gas,  which 
increases the price of electricity produced from gas fired power plants, which are often needed 
to satisfy demand. Prices started rising rapidly last summer when the world economy picked 
up after COVID-19 restrictions were eased. Subsequently, Russia’s invasion of Ukraine has 
exacerbated this situation.  

Energy is an essential commodity for households and industry. This demands a clear  policy 
response.  At  the  same  time,  the  current  crisis  shows  the  crucial  importance  of  delivering 
Europe’s Green Deal ambitions and of reducing dependence on fossil fuels, and notably on gas 
imports. Any measures must keep the long-term objective of climate neutrality in sight  and 
avoid lock-in effects.  

High  gas  and  electricity  prices  can  have  significant  negative  social,  distributional,  and 
employment  effects.  Vulnerable  and  low-income  households  are  hit  particularly  hard  when 
both, gas and electricity prices, rise, affecting household budgets negatively.  

The  Toolbox  presented  by  the  Commission  in  October  2021  was  designed  to  allow  a  co-
ordinated  approach  to  protect  those  most  at  risk  and  set  out  medium-term  measures  for  a 
decarbonised and resilient energy system.1 

On  8  March  2022,  the  REPowerEU  Communication2  outlined  a  series  of measures  to 
strengthen  the  Toolbox  to  respond  to  rising  energy  prices.  The  Commission  undertook  to 
investigate  all  possible  emergency  measures  to  limit  the  contagion  effect  of  gas  prices  on 
electricity prices and assess possible measures to optimise the electricity market design.  

Russia’s  invasion  of  Ukraine  has  been  a  stark  reminder  of  the  implications  that  Europe’s 
strategic dependence on fossil fuels (gas, oil and coal) imports from third countries can have 
on  the  Union’s  energy  markets  and  security  of  supply.  Based  on  the  Commission’s 
communications, EU leaders agreed in Versailles on 10-11 March to phase out the Europe’s 
dependency on Russian energy imports as soon as possible and invited the Commission to put 
forward a plan to ensure security of supply and affordable energy prices during the next winter 
season by end of March.  

On 23 of March the Commission addressed to the European Council and the other European 
institutions  a  Communication  on  short-term  emergency  options  to  address  the  high  energy 
prices3. On 24-25 March 2022, the European Council tasked the Commission to urgently reach 
out to energy stakeholders, and to discuss if and how the short-term options outlined by the 
Commission  would contribute to  reducing the  gas price and  address  its contagion  effect  on 
electricity  markets.  Moreover,  the  European  Council  called  on  the  Commission  to  “submit 
proposals that effectively address the problem of excessive electricity prices while preserving 
the  integrity  of  the  Single  Market  and  its  level  playing  field,  maintaining  incentives  for  the 

1 COM(2021) 660 final 
2 COM(2022)108 final 
3 COM/2022/138 final 

1 

 
 
 
 
 
 
 
 
 
                                                           
green transition, preserving the security of supply and avoiding disproportionate budgetary 
costs.” 

The aim of this Communication is to: 

  Propose  further  short-term  measures  going  beyond  the  toolbox  that  the  EU  or  Member 
States can take in the gas and electricity sectors to tackle effectively the impact of sustained 
high energy prices on consumers and companies. 
 
Identify possible measures for the eventuality of a disruption to the supply of Russian gas. 
  Set out a way forward to optimise the functioning of the European electricity market so that 
it  is  better  suited  to  withstand  future  price  volatility  and  fit  for  the  future  decarbonised 
energy system, with an increasing share of renewables in electricity production.  

2.  Market Expectations 

Gas and electricity prices have reached record levels in 2021 and hit all-time highs following 
the Russian invasion of Ukraine in the first weeks of March 2022. Gas prices, historically below 
30 EUR/MWh, were recently around 100 EUR/MWh, peaking occasionally at more than 200 
EUR/MWh.4 Consequently, wholesale electricity prices also increased strongly over the same 
period, due to gas-fired power plants often driving the price in EU power markets. For instance, 
German power prices, historically below 75 EUR/MWh, have averaged around 180 EUR/MWh 
this year so far, and have occasionally reached more than 400 EUR/MWh.  

The market actors expect5 energy prices to remain high for the rest of 2022 and until 2024-
2025, albeit to a lesser extent. Gas prices are currently expected to be at around 100 EUR/MWh 
until the end of next winter and to remain significantly above the long-term average for the 
foreseeable future, with expectations on electricity prices evolving accordingly. This forecast 
factors in the uncertainty in the market due to the current geopolitical tensions and the war in 
Ukraine. Further disruptions of Russian gas supplies to the EU in the forthcoming weeks or 
months may result in again higher levels of gas prices. 

In the short-term, the phasing-out of dependence on Russian natural gas imports will result in 
adjustments of demand and supply conditions and volatility in prices. Price levels will continue 
to  be  high  with  diversification  exerting  upward  pressure.  At  the  same  time,  the  accelerated 
development  of  renewable  energy  sources  and  significant  energy  savings/demand  response 
measures as presented in the REPowerEU plan should help mitigate these effects and contribute 
to lower electricity prices in the medium-term. 

4 The market price of electricity is determined on the basis of the marginal generation unit. 
5  Analysis of TTF forward curve from 29/04/2022, source: S&P Global Platts 

2 

 
 
 
 
 
 
 
 
 
 
                                                           
 Source: day-ahead and forward contracts TTF prices– S&P Global Platts 

3.  Short Term Intervention Measures 

Following  up  to  the  March  European  Council’s  mandate6,  the  Commission  conducted  a 
targeted outreach and collected the views of a wide range of energy stakeholders on possible 
short-term interventions. 

In particular, the Commission  organised on  26 of  April, a  targeted  stakeholder consultation 
meeting  with  the  participation  of  market  actors,  non-governmental  organisations,  network 
operators,  the  Agency  for  the  Cooperation  of  Energy  Regulators  (ACER)  and  national 
regulators, think tanks and academics (see annex for details). The consultation highlighted that 
there is a large convergence on key points. 

First, there was support for designing short-term temporary measures so as to avoid unintended 
consequences on security of supply, decarbonisation and the integrity of the European energy 
market. Stakeholders expressed a strong preference for the widest possible use of the Toolbox, 
with special emphasis on measures directly targeting household consumers and businesses. 

Second, the outreach to stakeholders revealed concerns about the risk of significant distortions 
stemming  from  interventions  directly  affecting  wholesale  market  functioning.  Energy 
stakeholders  consider  that  the  current  price  formation  ensures  an  efficient  use  of  resources, 
starting with the cheapest and least polluting generation, which becomes more important as 
resources become scarce.  

Stakeholders also feared that interventions into price formation could increase gas demand in 
the  EU,  undermining  the  energy  transition  and  the  European  Green  Deal  objectives  and 
endangering  the  EU’s  security  of  supply.  Short-term  price  interventions  could  remove  the 
interest of market participants to hedge against the risk of high prices in the future. 

6  In the meeting of 24 and 25 March 2022, the European Council tasked the Commission, as a matter of 
urgency, to reach out to the energy stakeholders, and to discuss, if and how, these short-term options would 
contribute to reducing the gas price and address its contagion effect on electricity markets, taking into account 
national circumstances. See European Council conclusions: https://www.consilium.europa.eu/en/documents-
publications/public-register/public-register-
search/results/?DocumentNumber=1%2F22&SubjectMatters=CONCL  

3 

 
 
 
 
 
 
 
 
 
                                                           
European energy markets are highly integrated. Member States rely on these well-functioning 
and interconnected markets to ensure their security of supply and reduce the overall cost of the 
system. ACER has estimated that the average yearly gain from the integrated electricity market 
for  European  consumers  is  about  EUR  34  billion  per  year.7  These  social  welfare  gains  are 
particularly  important  in  crisis  times  as  they  lead  to  considerable  savings  for  consumers. 
According  to  ACER,  more  than  one  third  of  the  total  benefits  achieved  from  cross-border 
electricity trading in Europe in 2021 correspond to the last quarter of 2021, when electricity 
prices were at their highest.  

Stakeholders stressed that any interventions in energy markets need to preserve the core of the 
internal  market,  namely  the efficient  allocation of resources and security  of supply through 
trade and solidarity. Therefore, if price-related market interventions in wholesale market were 
considered  despite  their  significant  downsides,  and  leaving  aside  the  current  legislative 
framework, stakeholders signalled a preference for intervening in gas markets as opposed to 
the electricity markets. Whenever considering such interventions, stakeholders underlined that 
it would be important to carefully assess their possible implications to the supply of gas to the 
Union, due to the global nature of the market, in particular LNG markets, and to indicate clear 
time  limitations  to  design  these  interventions  as  temporary  measures.  In  its  final  report8, 
published on 29 April 2022, ACER also looks into various exceptional measures contemplated 
in  the  context  of  the  current  emergency  situation  as  well  as  possible  structural  measures  to 
hedge electricity consumers from possible future prolonged periods of high energy prices and 
cautions against the distortive effects of direct wholesale market interventions in the current 
crisis context. 

Member States’ electricity and gas sectors vary significantly based on their economic situation, 
energy market and cost structure, the generation mix and the levels of interconnection as well 
as geographical location which has gained additional meaning with the Russian war in Ukraine. 
The most appropriate strategies for a crisis response consequently vary significantly between 
Member States and must consider the different national and local situations.  

The  Commission  invites  Member  States  to  continue  to  implement  the  measures  of  the 
Toolbox, as they constitute the first and most fundamental line of action and support to address 
the crisis at the level of consumers most affected already by the crisis. In line with the measures 
presented in  the Toolbox, Member States, to  the extent that they have not  done  so  already, 
could provide time limited compensation measures and direct support to energy-poor end-
users including groups at risk. Reductions in electricity demand would also have a clear price-
reducing effect. Member States should incentivise demand reductions in line with the actions 
proposed in the EU ‘Save Energy’ plan.9 Long term PPAs can also be instrumental in ensuring 
stable prices for certain consumer categories.  

Further to the measures of the Toolbox, which continue to apply, the Commission proposes 
below additional short-term interventions in gas and electricity markets. All these additional 
temporary measures can be extended to cover the next heating season. 

7 ACER’s Final Assessment of the EU Wholesale electricity market design, April 2022, p. 21 
8 ACER (2022). Final Assessment of the EU Wholesale Electricity Market Design. 
9 COM(2022) 240 final. The EU ‘Save Energy’ plan proposes a two-pronged approach aiming at achieving 
short-term energy savings through behaviour changes and accelerating and strengthening mid- to long-term 
energy efficiency measures. 

4 

 
 
 
 
 
 
 
 
 
                                                           
a)  Gas Market Interventions to Address the Cause of the Crisis 

High  gas  prices  due  to  the  increase  in  demand  after  COVID-19  and  the  uncertainty 
created by the Russian invasion in Ukraine are the root cause of the current crisis. Given 
the important role gas plays still today in power generation, finding ways to address the high 
gas prices will therefore also help to address the fallout in  electricity markets as well as its 
social and employment implications. Increasing supply from both inside and outside the EU 
will have a significant impact in that respect.  

The Commission and Member States have recently set up the EU Energy Platform that will 
help secure energy supply at fair prices and reduce – and ultimately phase out – EU dependency 
on Russian gas. The Platform will aggregate  gas  demand in the EU on a voluntary basis to 
attract reliable supplies from global markets and to mitigate price effects. It will in turn also be 
instrumental for ensuring an adequate level of gas storage. At the same time, it has to avoid 
Member  States  competing  with  each  other  for  the  same  supplies  by  ensuring  that  the  same 
conditions are applied to different Member States by third countries. 

To  address  the  impact  of  high  prices  for  consumers,  Member  States  can  in  the  current 
circumstances extend retail price regulation for natural gas. This is particularly relevant 
when gas plays a particular role in heating and industrial feedstock10. The volumes covered by 
such  tariffs  would  have  to  be  limited  so  as  not  to  exceed  the  volume  of  the  previous  gas 
consumption of the consumers concerned.  

Emergency  liquidity  support  measures  help  to  provide  relief  for  commodity  traders  and 
energy companies which are currently confronted with high margin calls on their derivative 
portfolio as a result of significant market volatility. If they contain State aid, those interventions 
need  to  take  place  in  full  respect  of  the  respective  provisions.  They  need  to  be  limited, 
proportionate  and  transparent  and  must  be  targeted  to  avoid  excessive  distortions.  The 
Temporary Crisis Framework for State Aid can be used by Member States for their targeted 
measures.  Finally,  those  measures  should  not  undermine  the  sanctions  regime  imposed  on 
Russia.  

The European gas exchanges (e.g. TTF) have in recent times often seen extreme volatility in 
trading  during  the  day.  To  address  possible  distortive  effects  on  the  price  formation  due  to 
possible speculative moves it is possible to revisit the limits applied to this short-term volatility 
in their internal trading rules.  

b)  Preparing for a Full Disruption of Russian Gas Supplies  

While the previous interventions are calibrated to address a situation of sustained high prices, 
a different set of measures may become necessary in the event of a sudden large scale or even 
full disruption of the supplies of Russian gas.  

To address a security of supply shock the EU has instruments in place, such as the national 
solidarity  mechanisms  and  the  emergency  plans  developed  under  the  Security  of  Supply 

10 Retail gas market should be understood as including also industrial users. 

5 

 
 
 
 
 
 
 
 
 
 
 
 
                                                           
Regulation  with  both  national  and  regional  measures,  reinforced  regional  cooperation  on 
security of supply and the regular exchanges between Member States and the Commission in 
the Gas Coordination Group. Solidarity agreements and the solidarity mechanism foreseen in 
the Regulation are also part of the existing security of supply rules.  

However, these solidarity mechanisms are meant to be triggered in case of a national security 
of supply emergency. In case of further gas disruptions affecting several Member States at the 
same  time,  additional  measures  may  be  necessary.  The  existing  tools  could  usefully  be 
complemented  with  a  coordinated  approach  to  identify  essential  consumers  which  are  not 
already protected under the existing legal framework and emergency plans. The Commission 
suggests  establishing  common  principles  in  this  regard  to  prepare  for  a  possible  wider 
disruption where gas markets no longer optimally match supply and demand and could leave 
some vital demand unsatisfied11. This could call for a reduction of gas demand even in Member 
States less directly impacted so as to ensure supply for essential functions or sectors in more 
directly impacted Member States. The extent to which legislative changes would be required 
to ensure a harmonised approach in this respect would have to be assessed. In this context, the 
Commission invites Member States to accelerate the adoption of preparedness measures to a 
possible disruption to the supply of Russian gas.  

Such intervention may trigger the need for an administrative price for gas to be established in 
parallel, such as a maximum regulated price for natural gas delivered to European consumers 
and companies (EU price cap) to cover the period of a declared Union emergency12. This type 
of price intervention would be limited to the duration of the EU wide emergency situation. One 
possibility would be to  limit price formation  during this disruption scenario  by capping the 
price on European gas exchanges, but such a price cap can in general be introduced in different 
ways and can intervene at different levels of the gas value chain.  

Such an EU price cap in a major disruption scenario would have the advantage of limiting the 
damaging  price  effects  of  the  disruption  for  consumers,  companies  and  essential  service 
providers to pre-established levels. It would however have to be ensured that the introduction 
of such a price cap does not worsen the EU’s ability to attract pipeline and LNG supplies from 
alternative suppliers, which will be vital in such a scenario as any reduction or limitation of 
alternative supply channels in an emergency situation would lead to a further deterioration of 
the shortage situation. Such a cap would also automatically limit the potential for price-driven 
reductions  of  gas  demand,  hence  negatively  impacting  the  supply-demand  balance.  If 
compensated and unless accompanied by significant curtailment, this type of intervention could 
require significant amounts to be financed.  

c)  Electricity Market Interventions 

While the previous measures intervene in the gas market as the root cause of the high price 
problem, there are also further measures that can be applied on the wholesale electricity market, 
taking into account national and local contexts:  

11  COM(2022) 230 final 
12 This is declared by the Commission at the request of at least two Member States and may be also declared at 
the request of one. 

6 

 
 
 
 
 
 
 
 
 
 
 
                                                           
  First, in line with the Communication “Security  of supply and affordable energy prices: 
Options for immediate measures and preparing for next winter”, the Commission considers 
that taxation or regulatory measures which are aimed at removing infra-marginal rents 
of certain baseload electricity generators created by the current crisis situation can be 
justified.    Revenues  can  help  finance  targeted  and  temporary  measures  in  support  of 
vulnerable households, especially those at risk of energy poverty, and businesses. These 
measures should be non-discriminatory and designed in line with the guidance provided in 
Annex  2  to  the  REPowerEU  Communication.  However,  in  light  of  the  outlook  for 
electricity prices over the next months, and the need to maintain consumer relief measures 
in place for a longer period, the Commission considers that those measures can be extended 
beyond 30 June 2022 to cover the next heating season. 

  Second,  in  addition  to  the  measures  already  set  out  in  Annex  1  to  the  REPowerEU 
Communication which remain applicable, a temporary extension of regulated retail prices 
to cover also small and medium-sized enterprises is acceptable. This extension would 
have  to  be  limited  in  terms  of  the  quantities  covered  so  as  not  to  trigger  an  increase  of 
consumption.   

  Thirdly,  temporary  national  measures  to  subsidise  the  cost  of  gas  used  for  power 
generation (e.g. to introduce a reference price for gas used for electricity production) with 
a view to lowering prices on the electricity market are considered by some Member States. 
Such measures should be designed in a way compatible with EU Treaties, in particular with 
regard to the absence of restrictions to cross border exports, sectoral legislation and State 
aid  rules  and  notified  to  the  Commission  for  approval.  The  Commission  notes  that, 
depending  on  their  design,  such  measures  may  entail  significant  costs.  These  measures 
should be strictly limited in time and tailored for regions with very limited interconnection 
capacity,  high  influence  of  gas  in  price  setting  and  consumers  particularly  exposed  to 
wholesale electricity prices. The measures should also avoid penalising market participants 
which secured their electricity with forward contracts. Member States deciding to introduce 
such measures are invited to, inter alia, consult affected neighbours and stakeholders and 
determine  and  monitor  the  additional  gas  consumption  and  increased  CO2  emissions 
resulting from the intervention.  

  Finally, the increased trade flows across bidding zones due to crisis related price differences 
between  such  zones  may  lead  to  a  considerable  increase  of  congestion  rents.  These  so-
called congestion revenues must be used, as a priority, to ensure network capacity. These 
rents  can  in  duly  justified  cases  exceptionally  be  used  to  finance  emergency  measures 
targeting consumers, notably vulnerable households and those at risk of energy poverty and 
businesses, under the control of regulatory authorities. 

In addition, to accelerate as much as possible to the use of demand response, the Commission 
urges  the  effective  and  rapid  implementation  of  the  Electricity  Directive,  in  particular 
provisions that support active consumers and demand response. The Commission has already 
initiated discussions with Member States to collectively address the challenges related to this 
implementation process. 

4.  A future-proof Electricity Market Design  

a.  European Council Conclusions and ACER Report 

7 

 
 
 
 
 
 
 
 
 
 
 
 
The  European  Council  invited  the  Commission  to  put  forward  any  necessary  initiatives 
concerning  the  electricity  market  design,  taking  into  account  the  final  ACER  report13, 
published on 29 April 2022. 

ACER’s report concludes that the fundaments of the European electricity market design bring 
significant benefits to European consumers and calls Member States to rapidly implement any 
pending market regulations and rules. At the same time, the report indicates several ways in 
which the current market design can be complemented and improved to make it future proof 
and fit for a fully decarbonised electricity mix. 

ACER identifies a series of challenges ahead, particularly the need to accelerate investments 
in  renewable  generation,  to  ensure  low  carbon  supply  and  demand  response  when  variable 
renewable production is not available, to tackle rising price volatility and enhancing flexibility 
of the power system. 

As a response to these challenges, ACER identifies several options. First, competitive long-
term  markets  would  help  to  “insure”  against  risks.  However,  their  current  liquidity  in  the 
majority of markets is low (there are few offers to buy or sell), and products offered are limited 
(to  up  to  two  to  three  years  ahead  in  some  markets  except  for  renewable  power  purchase 
agreements).  Second,  other  tools  can  contribute  to  secure  the  needed  investments,  such  as 
support schemes for renewables or other flexible resources, including demand response and 
storage.  Commercial  power  purchase  agreements  could  be  promoted  and  facilitated,  by 
opening them to smaller actors beyond vertically integrated companies, enabling cross-border 
contracts and designing State support schemes, in line with State aid rules where applicable, 
for financial guarantees14 to tackle counterparty risk15. Those public support and commercial 
instruments  could  be  combined.  Third,  enhanced  coordination,  including  across  borders 
between  Member  States,  in  investment  decisions  would  support  the  Union  in  meeting  its 
targets. Deepening market integration (across all electricity markets) is a no-regret option to 
further strengthen coordination at the EU level and reap more benefits. 

b.  Possible Market Reforms 

Based  on  the  conclusions  of  the  ACER  report  and  its  exchanges  with  stakeholders,  the 
Commission has identified a set of issues which deserve to be further analysed with a view to 
establishing whether any necessary legislative steps or guidance to Member States are required 
to optimise the functioning of the electricity market design. The issues relate to questions such 
as how to:  

  protect end consumers and deliver affordable electricity in both short and long run;  
  ensure the resilience of the electricity market and system in particular to cope with high 

amounts of variable renewables and a more decentralised production structure; and 

  support the achievement of the European Green Deal. 

13 ACER (2022). Final Assessment of the EU Wholesale Electricity Market Design. 
14 Communication from the Commission – Guidelines on State aid for climate, environmental protection and 
energy 2022, C/2022/481 
15 C(2022) 3219 final  

8 

 
 
 
 
 
 
 
 
 
                                                           
The following areas would be addressed in this process. 

Electricity as a basic right for vulnerable consumers  

Union legislation16 recognises that adequate heating, cooling and lighting, and energy to power 
appliances are essential services. The European Pillar of Social Rights17 includes energy among 
the  essential  services  which  everyone  is  entitled  to  access.  With  energy  prices  at  an 
unprecedented level,  the  number of  citizens facing energy poverty  is  likely  to  increase, and 
even those who do not classify as energy poor can experience lower standards of living.  

As announced in the October Energy Prices Communication the Commission has established 
the Coordination Group on Vulnerable Consumers and Energy Poor where Member States have 
already  exchanged  best  practice  on  how  to  support  and  protect  consumers  in  the  current 
circumstances. The electricity market design could include ways to ensure that all citizens have 
access  to  the  energy  they  need  including  ensuring  that  certain  consumers  have  access  to  a 
minimum level of electricity demand at a reasonable price, regardless of the situation in the 
electricity markets.  

Protecting consumers against high prices and excessive volatility 

One way of mitigating the risk of future increases in power prices is to hedge. The simplest 
way to hedge is to engage in a supply agreement at a fixed price. There are established markets 
across the EU where electricity can be traded for forward delivery. However, some of those 
markets lack liquidity, namely for longer dated contracts, so regulatory interventions may be 
required to improve liquidity on forward power markets. 

The  current  crisis  has  demonstrated  the  benefits  of  market-based  instruments  to  protect 
consumers against price risks. These instruments typically involve a contractual promise by a 
generator  to  make  electricity  available  to  certain  consumer  categories  at  pre-established 
conditions  once  the  normal  market  price  hits  a  certain  level.  They  hence  provide  for  a 
contractual insurance against price risk. As with any type of insurance, the reduction of the 
price risk in such constructions of course comes at a cost.  Some Member States have already 
used these types of contracts as part of the capacity mechanisms that they use to ensure security 
of electricity supply. In this context the contracts have been referred to as reliability options. 
Academics  have  recently  suggested  an  alternative  contract  called  affordability  options, 
designed to protect consumers not against short term price spikes but rather against sustained 
high prices. 

Following  the  rapid  increase  of  wholesale  power  prices,  some  suppliers  went  bankrupt  and 
were not able to honour their supply obligations. This meant that customers had to choose new 

16 Directive (EU) 2019/944 of the European Parliament and of the Council of 5 June 2019 on common rules for 
the internal market for electricity and amending Directive 2012/27/EU, see recital 59 linked to Articles 5, 28 and 
29 

17 The European Parliament, the Council and the Commission proclaimed the European Pillar of Social Rights 
in 2017 at the Gothenburg Summit. The Pillar sets out 20 principles. Principle no 20 states: ”Everyone has the 
right to access essential services of good quality, including water, sanitation, energy, transport, financial 
services and digital communications. Support for access to such services shall be available for those in need.” 

9 

 
 
 
 
 
 
 
 
                                                           
suppliers at short notice and were often only able to negotiate terms which were less favourable. 
Requirements  for  suppliers  to  hedge  part  of  their  supply  obligations  and  other  regulatory 
requirements to ensure that suppliers are sufficiently robust to withstand future crises may be 
appropriate to ensure that customers can rely on their suppliers and do not pay more for the 
supply of electricity than they originally agreed to. Suppliers could also be required to have 
fixed  priced  offers  available  in  their  portfolio  similarly  to  existing  requirements  to  offer 
dynamic contracts to customers. 

Ensuring investments in firm and low carbon capacity  

To ensure long term security of supply and provide investor certainty, it will need to be further 
assessed whether capacity mechanisms have to become a long-term feature of the electricity 
system  and  what  this  would  mean  for  their  integration  in  the  electricity  market.  These 
mechanisms  would  need  to  be  designed  to  ensure  investments  in  firm  renewable  and  low 
carbon capacity compatible with the Union’s climate targets. Such capacity mechanisms could 
also integrate some of the contractual affordability mechanisms referred to above.  

The crisis has also shown that where generation is publicly supported, as is often the case for 
renewables,  the  support  must  be  designed  to  ensure  investment  while  avoiding  excessive 
returns for investors in periods when market prices are high. Two-way contracts for differences 
(CfDs), under which the operator receives a top-up when market prices are low and returns it 
when they are high, have been used in some Member States to achieve this aim. Well-designed 
CfDs can contribute to making the electricity price formation more independent from the cost 
of  natural  gas  and  it  may  be  useful  to  rely  on  this  model  as  a  default  for  new  renewables 
investments and other public investments in generation (as for nuclear generation).    

Enhancing demand response and flexibility to reduce peak prices 

Resources or infrastructure bringing more flexibility such as demand-side response and storage 
enable consumers to react to prices, consuming more when there is excess generation available 
and reducing their consumption when supplies are tight. This reduces overall costs and allows 
them to manage their costs and helps effectively integrate high shares of variable renewable 
energy.  Investments  in  such  flexible  technologies,  including  the  roll  out  of  smart  grids  in 
accordance with the Electricity Directive, could be financed under Union funds and can reduce 
the need for more traditional capacity mechanisms which often finance gas-fired or other fossil 
generation.  

The Digitalisation of Energy Action Plan scheduled for adoption in September will propose 
measures to  enhance data exchange and interoperability, and  to support the development of 
digital tools for consumers. This will make it easier for consumers to valorise their flexibility, 
for  example  by  responding  to  price  signals  or  matching  their  consumption  with  their  home 
production (e.g. from PV panels on their roofs). The Commission also proposes to accelerate 
the development and adoption of a new network code dedicated to demand response. 

10 

 
 
 
 
 
 
 
 
 
 
Through  greater empowerment  of consumers, it is  also  important  to  promote collective and 
individual  self-consumption  schemes  as  stressed  in  the  EU  Solar  Strategy18  to  increase  the 
generation of solar power in the EU in the coming years.  

Electricity and gas infrastructure 

Investments in electricity infrastructure are crucial for the functioning of the internal market. 
Cross-border capacity should be increased in regions where this is necessary to enable the free 
flow of electricity between Member States. 

Innovation in electricity and gas infrastructure does not appear to be explicitly incentivised or 
recognised in the national regulatory framework of many Member States. This is particularly 
an  issue  where  the  gains  from  innovative  approaches  are  uncertain.  Moreover,  the  national 
regulatory  frameworks  of  many  Member  States  appear  to  set  barriers  to  innovation  on 
electricity and gas infrastructure. For instance, sometimes they do not have specific provisions 
related  to  innovation  or  are  designed  in  such  a  way  that  set  out  a  bias  towards  capital 
expenditure (CAPEX) based solutions instead of operational expenditures (OPEX-solutions) 
or that deter TSOs from investments due to perceived high project risk and strict penalties for 
not meeting deadlines. Member States should remove those barriers to innovation and develop 
instead innovation-oriented regulatory frameworks, while avoiding fossil fuels based stranded 
assets.   

Reducing costs and windfall profits through locational pricing 

Another issue identified by ACER is the need for more attention to locational signals in the 
European  market  design.  This  entails  creating  different  market  prices  in  different  places  to 
reflect the local balance of supply and demand and the availability of transmission. A 2019 
study identified cost savings of 4% from introducing locational pricing in Europe19. The greater 
the increase of renewables in the energy mix, the more important these benefits are expected 
to become. A 2020 study anticipates 10% higher 2040 system costs in the absence of locational 
prices20. The possible implications of mechanisms to strengthen locational price signals will be 
analysed further. 

Market surveillance and transparency  

Regulation  1227/2011  on wholesale market  integrity  and transparency21  (so-called REMIT) 
was designed more than a decade ago to ensure that consumers and other market participants 
can have confidence in the integrity of electricity and gas markets, that prices reflect a fair and 
competitive  interplay  between  supply  and  demand,  and  that  no  profits  can  be  drawn  from 
market abuse.  

Although  there  has  not  been  any  evidence  of  market  abuse  as  a  cause  of  the  current  crisis, 
ensuring an up to date and robust framework to protect against such abuse is very important in 
periods  of  high  prices  and  market  volatility.  The  REMIT  framework  could  be  reviewed  to 
explore the scope to more effectively mitigate the risks of market abuse by improved market 

18 COM(2022) 221 final 
19 Tractebel, 2019. Nodal pricing in the European internal electricity market. 
20 NERA, 2020. Cost Benefit of Access Reform: Modelling Report. 
21 OJ L 326, 8.12.2011, p. 1–16. 

11 

 
 
 
 
 
 
 
 
 
                                                           
transparency, enhanced market data quality and collection as well as better enforcement at EU 
level. 

5.  Conclusion  

The Commission invites the European Council to endorse the short term measures to address 
high prices proposed in this Communication. It also invites Member States, in line with the 
REPowerEU Plan22, to accelerate preparedness measures for a possible disruption to the supply 
of Russian gas.  

Looking beyond the short term, the Commission considers that, based on the ACER report and 
its  outreach  to  stakeholders,  the  current  electricity  market  design  delivers  an  efficient,  well 
integrated market, allowing Europe to reap all the economic benefits of a single energy market, 
ensuring security of supply and sustaining the decarbonisation process. The Commission calls 
on Member States  to  ensure the full implementation  of the electricity market  legislation, in 
particular  to  ensure  cost-reflective  tariffs  and  the  removal  of  barriers  to  the  use  of  flexible 
resources,  which  will  allow  integrating  variable  renewable  electricity  and  enhancing  the 
flexibility of the grid to facilitate energy system integration. The Commission highlights the 
need to fast track the implementation of the REPowerEU plan to fast forward the phasing out 
of Russian gas and invest in a resilient energy system. The Commission will continue to support 
Member States in the preparation and implementation of reforms and investments to phase out 
the  dependency  on  fossil  fuel  imports  from  Russia,  inter  alia,  via  the  Technical  Support 
Instrument. 

However, there are areas where adjustments to the EU electricity market design are necessary 
to  take  into  account  the  future  energy  landscape  and  generation  mix,  new  emerging 
technologies, geopolitical developments as well as the lessons learnt from the current crisis. 
Such  adjustments  should  contribute  to  optimising  the  functioning  of  the  electricity  market 
design and make it better fit to drive a cost-effective decarbonisation of the electricity sector, 
deliver affordable prices  for consumers and increase its  ability to  withstand price volatility. 
This Communication has identified a set of issues for which these adjustments seem warranted. 
Building on this preliminary work, the Commission will launch an impact assessment process 
and  engage  with  Member  States  and  a  wide  range  of  different  stakeholders  and  national 
regulatory  authorities  to  adjust  the  electricity  market  design  and,  where  necessary,  its 
legislative framework.  

22 COM(2022) 230 final 

12 

 
 
 
 
 
 
 
 
 
 
                                                           
Annex: detailed overview of stakeholders’ input 

Electricity producers 

Strong preference for targeted support to consumers who need it the 
most. Any price intervention in the wholesale electricity markets is 
considered  highly  problematic  as:  (i)  they  would  not  target 
consumers who needs support the most; (ii) would disrupt market 
dynamics  and  jeopardise  the  market  functioning  and  (iii)  would 
distort market signals to investors.  
Taxation of returns of certain market participants would damage the 
investment  environment  by  destroying  investors’  confidence;  if 
applied, such measures should only be a “last resort” solution and 
only of a temporary nature. 

Electricity end 
consumers 
representatives 

Electricity power 
exchanges 

Electricity demand 
response 
representatives 

local 

resources. 

Stressed  the  need  to  support  financially  the  consumer,  while 
incentivising energy  efficiency. Further actions  such as installing 
photovoltaic panels or heat pumps should be facilitated. Urged for 
the  implementation  of  the  legislative  framework  for  electricity 
markets  (2019  Electricity  Regulation  and  Directive),  to  enable 
prosumers to become a reality. The representatives of local energy 
communities  recalled  the  importance  of  ramping  up  local  energy 
planning  and  using 
Industrial  electricity 
consumers’ representatives called for stronger use of State aid tools, 
and  for  addressing  the  high  returns  of  generators  via  fiscal 
measures. Demand side response, deployment of smart meters and 
liquid long-term markets would also be part of the solution to the 
high energy prices. 
Opposed to price interventions in the wholesale electricity markets. 
They emphasised that price caps should be avoided because they 
undermine  price  formation  and  hamper  the  ability  of  the  energy 
markets  to  deliver  a  secure  and  affordable  supply  of  electricity. 
They  warned that such  price  caps harm the long-term market,  as 
market participants would lose the incentive to hedge themselves 
against high prices. They recalled the key role of electricity market 
coupling  in  building  a  single  energy  market,  which  should  be 
preserved as it ensures an efficient use of the resources. 
Recalled the strong potential of demand response in lowering peak 
demand for electricity, thus softening peak prices. They pointed out 
that  direct  support  to  consumers  and  State  aid,  if  aligned  with 
decarbonisation objectives, is the most efficient solution. Besides, 
they  urged  for  the  implementation  of  the  Union’s  legislative 
framework on electricity markets (2019 Electricity Regulation and 

13 

 
 
 
 
 
 
 
 
 
  
  
  
  
Electricity storage 
representatives 

Electricity grid 
operators 

Gas industry 

Gas grid operators 

Energy traders 

Technology 
providers 

Think Tanks  

in 

the 

toolbox  of  measures 

Directive), to remove barriers to the development of demand side 
response. 
 Indicated that price interventions (like price caps) risk having long-
term distortive effects on the market and harming the Green Deal 
objectives.  They  recalled  the  need  to  implement  the  Union’s 
legislative  framework  on  electricity  markets  (2019  Electricity 
Regulation and Directive) and accelerate permitting procedures for 
renewable projects enabling storage. 
Welcomed 
the  Commission 
Communication  of  October  2021.  They  recalled  the  need  to 
thoroughly assess the impact of emergency measures and keep the 
fundamentals of the market functioning. 
Expressed support for prioritising the provision of direct support to 
consumers. Raised concern about interventions in the gas wholesale 
market  and  the  introduction  price  caps  on  the  wholesale  gas 
markets.  They  considered  that  they  would  hinder  the  Union’s 
competitiveness  and  ability  to  attract  volumes  in  the  gas  market. 
They  also  expressed  scepticism  with  an  intervention  in  the  gas 
market concerning negotiated volumes and prices, by stating that 
purchasing  is  a  core  element  of  a  competitive  gas  market  in  the 
Union,  which  may  be  hampered  by  collective  action.  Gas 
diversification  should  be  part  of  the  solution,  including  domestic 
gas production. 
Provided  an  operational  insight  of  the  situation  for  winter  2022-
2023,  pointing  out  that  all  gas  sources  are  used  at  their  maximal 
capacities. However, maximising the filling of storage could be a 
feasible  solution,  inducing  however  a  change  in  gas  flows  inside 
Europe, with potential bottlenecks to tackle. 
Opposed to national interventions in wholesale electricity markets 
as they would undermine cross-border trade and the efficiency of 
the internal energy market. In this respect, the introduction of price 
caps should be avoided. Marked preference for measures targeting 
retail  consumers.  They  call  for  coordination  regarding  the 
management of gas demand. 
Stressed the need for further investment as regards infrastructures 
and digitalisation, enabling energy new services to develop. 
Agreed on the need to let the wholesale electricity and gas markets 
work. Any price intervention would harm the  competitiveness  of 
the  wholesale  markets  as  well  as  the  efficient  use  of  the  energy 
resources and may lead to further need for administrative measures 
in the future.  

14 

 
 
 
 
 
 
 
  
  
  
  
  
  
intervention 

limiting  returns  of  certain  market 
Regulatory 
participants  would  increase  requirements  for  risk  premiums, 
leading to higher costs for energy.  
Digitalisation, development of demand side response, deployment 
of smart meters and further integration of the European electricity 
market are quoted as fundamental long-term elements for 
improving the current market design. 
Warned that of the risk that measures proposed in the options may 
increase  the  Union’s  dependence  on  fossil  fuels  (such  as  price 
caps). 
Marked  preference  for  options  that  provide  direct  support  to 
consumers. 
General reluctance to intervene on price formation, particularly on 
the electricity wholesale market. Marked preference for providing 
direct support to consumers to reduce energy bills.  
Observed  that  an  intervention  on  gas  prices  and  volumes  would 
need  to  rely  on  a  European  solidarity  plan  for  coordinated 
curtailments within the EU. 

Non-governmental 
organisations 

Academia 

15