Toward the Target Model 2.0 | Research | FTI Intelligence

Toward the Target Model 2.0

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hanging light bulbsThe current market framework for electricity in Europe is obsolete and at odds with the twin objectives of fighting climate change and maintaining security of supply. European power markets need a major reform in order to deliver the investment required for decarbonisation and to maintain security of supply.

The 120+ page study, Toward the Target Model 2.0, provides a comprehensive assessment of the issues with the current European electricity markets such as how to coordinate investment better between network, centralised generation and decentralised generation; how to secure revenues for investors to facilitate financing and reduce cost for consumers; what lessons can be learnt from ‘hybrid markets’ in North America and in Latin America; and how to reform the carbon market and renewables support schemes to gradually introduce a level playing field for all technologies.

The study also presents a set of radical ideas for the reform of the European power and carbon markets. These include:

  • Refocussing market reforms toward long term investment incentives, in addition to the historical emphasis on integrating day ahead markets which provide short term price signals to balance the system in real time;
  • Introducing a carbon price floor at the European-level, in order to provide a long term bankable carbon price signal and stimulate investment in clean technologies
  • Coordinating renewables deployment on a cross-country regional basis, and moving to investment based support schemes to reduce distortions of power markets;
  • Promoting long-term contracts which support lower cost financing by implementing contracting obligations on suppliers;
  • Reinventing coordination in a fragmented value chain by implementing certain planning and coordination mechanisms at the regional and European-level, such as regional renewables development plans consistent with the network development plans.
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