Amid debate over EU consumer price regulation, Visegrad Group staying the course | News Europe

Consequently, the EC’s position on retail price regulation (along with capacity markets) calling o the Member States to limit and eventually abolish them altogether should not come as a surprise. The core argument is that regulated prices tend to be artificially low, reducing the scope of market competition and consumer switching, and dissuading private investment. Furthermore, the EC believes that elimination will open consumer participation in the retail segment and increase flexibility in the form of storage and demand-side measures.

Several countries oppose this unbridled market philosophy, especially in Central and Eastern Europe (CEE) where, in the name of energy security, governments traditionally are more active in shaping energy markets and treat the provision of affordable electricity for citizens as a state social service (and re-election strategy). End consumer prices tend to be politicised and – as demonstrated by Hungary and Slovakia – interventions are becoming more overt and pervasive.

The European Price Breakdown

Unlike wholesale electricity markets, which have been near unanimously liberalised and integrated onto dynamic trading platforms across Europe, retail markets remain protected and segmented in several European countries and parts of the United States. Yet, the practice is more deeply hardwired in CEE where end-user prices are treated as more of a social policy tool with political stakes.

The EC proposal would extend a five-year window for vulnerable consumers while the bulk of households would be immediately exposed to market forces. It would establish dynamic pricing through smart metering systems, aggregators (groups of consumers) and local energy communities/associations within a geographically confined network to buy and sell electricity.

These measures are meant to maximize demand-side flexibility for system balancing by allowing the direct participation of consumers in the market that can capitalize on savings opportunities from price volatility.

Price volatility is still precisely what many governments want to protect their citizens from. Price regulation caps prices to shield defined segments of consumers from sharp spikes, which similarly to peak load prices that are being eroded by renewable energy sources on wholesale markets, are essential for utilities to recoup investment costs.

The inability to pass higher prices onto customers in times of high demand or low supply discourages prospective investors, which have to be incentivised by nonmarket methods – subsidies – in the form of capacity payments to ensure sufficient future capacity.

Politicians certainly don’t prioritize twenty or thirty-year time horizons like energy investors must, so policies and regulations that manipulate markets for short-term benefits can come at a long-term cost to ratepayers and/or taxpayers.

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Amid debate over EU consumer price regulation, Visegrad Group staying the course.

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