Energy Market Reforms Crucial for EU to Achieve Net Zero Goals

Wärtsilä, the technology group specializing in sustainable energy solutions, has released a new study outlining the critical measures required for the European Union (EU) to achieve its net zero targets and improve energy security. The report, entitled "Energy Market Redesign: For a Decarbonised Europe," emphasizes the need for the European Commission to reform its electricity market design to place a value on flexible balancing power capacity.

The study highlights that Europe will require at least 1,100 GW of renewable capacity by 2030 to continue its decarbonisation journey and ensure energy security. However, for a renewable-based system of this scale to run reliably, it must be supported by 19 GW of new flexible gas capacity and 50 GW of energy storage to deliver power at times of low generation.

Wärtsilä’s modelling shows that the investment case for flexible balancing power capacity could become even more challenging in the future without the right market pricing mechanisms for balancing power. Hence, the study includes a number of key recommendations for market reform, including calls for the European Commission to define a technology-agnostic regulatory framework, improve price transparency, and enable strong, granular price signals.

Håkan Agnevall, President & CEO of Wärtsilä, said: “We urgently need market reform to ensure security of supply and to give clear market signals to investors to encourage much greater investment in flexible balancing power technologies. The transition cannot be delivered by renewables alone. For the EU to continue to benefit from the competitive cost of renewable energy, flexible balancing power capacity is urgently needed to plug the supply gap during periods of imbalance.”

The study also demonstrates that balancing technologies like reciprocating engines and energy storage will play a crucial role in the EU power system, accounting for a 19% share of electricity generation by 2030. These technologies will need to operate for a few hours each day to ensure grid stability. To enable 100% renewable energy systems, the grid balancing gas engines can be converted to run on sustainable fuels such as hydrogen when they become readily available.

In conclusion, Wärtsilä’s Energy Market Redesign report highlights the critical role of market reform in the EU’s transition to a net zero power system. The report recommends a technology-agnostic regulatory framework, price transparency improvements, and strong, granular price signals. By implementing these measures, the EU can ensure security of supply and attract much greater investment in flexible balancing power technologies to support renewables, ultimately enabling the EU to achieve its net zero targets.