How resilient is Europe's energy market to geopolitical crisis?

Dominique Jamme, managing director of the French National Regulatory Authority for Energy, offers his insights on the effectiveness of Europe's energy market design in the face of the recent geopolitical and market challenges.

While acknowledging the market's strengths in facilitating efficient energy flows and reacting promptly to the Ukraine crisis, Jamme also highlights crucial areas for improvement, particularly regarding long-term stability and security.

Strengths of the current design

• Efficient resource allocation: The interconnected market allows energy to flow from areas with abundance to areas with demand, optimising efficiency and utilisation.
• Crisis response: During the gas crisis, the market facilitated rapid relocation of resources and consumption reduction, demonstrating its adaptability.
• Competitive environment: Except for natural monopolies like networks, the market fosters competition, potentially driving innovation.

Proposed improvements

Jamme explains that the current energy market design prioritises short-term price signals, leading to high volatility and societal pressure during crises.

There is also a need for more long-term contracts. Specifically, Jamme calls for integrating longer-term contracts such as PPAs and CFDs to smooth price fluctuations and provide stability for businesses and consumers.

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The market could also be used more effectively to spur investment in innovation, says Jamme. The market's competitive nature can accelerate the development of innovative solutions and technologies needed for the energy transition.

Energy security: A European imperative

A collaborative approach is required to ensure Europe can maintain energy security, states Jamme. While energy mix decisions remain sovereign, European member states are increasingly united in recognizing the importance of regional collaboration to enhance security.

Jamme predicts that new interconnectors will allow Europe to better utilize diverse resources and improve supply flexibility.

Also, energy independence has been given a much-needed boost due to the rapid construction of floating LNG terminals.

With a specific focus on France, the country is well-integrated and actively participates in the European market, with extensive interconnections and LNG infrastructure.

Nuclear power remains dominant in France's energy mix, influencing short-term price expectations, although there are ambitious plans for offshore wind development and overall expansion of renewables.

With the overarching goal of carbon neutrality in mind, Jamme emphasizes the need for the European energy market to continuously adapt and innovate.

By building upon the current strengths while addressing the limitations, the market can play a pivotal role in securing a sustainable and affordable energy future for Europe.