Splitting day-ahead market flawed move, expert warns

An energy ministry proposal for a split of the day-ahead market into two entities is short-sighted, flawed, counter-productive and does not make economic sense, Dr. Alex Papalexopoulos, the architect behind Greece’s target model, has noted in an article for energypress.

As a result of a rush to eliminate CO2 emissions, investment in coal and gas-fired power plants in most regions has plummeted but investments in renewable energy sources have not been enough to fill the gap, Dr. Papalexopoulos noted, adding that strong demand and weak supply fueled the global energy crisis, which began unfolding last autumn.

Gas, coal and oil prices skyrocketed and, in addition to the climate challenge and emerging energy crisis, the war in Ukraine and its impact on natural gas supply has further exacerbated the chaotic situation in global energy markets, Dr. Papalexopoulos pointed out.

Decarbonization policies should be pursued without delay and at a faster pace, but the West needs to adopt an inclusive “all in” technology policy through which concurrent development of all technologies should be pursued, he stressed.

Amid this chaotic energy landscape, the role of wholesale energy markets is now even more crucial, while the temptation to rush big government interventions into the wholesale trade picture without the input of experts is a recipe for disaster, Dr. Papalexopoulos warned.

Splitting wholesale markets makes absolutely no economic sense as this would destroy price signals for demand-side resources and energy efficiency needed to provide system flexibility, Dr. Papalexopoulos explained, adding that such a move would reduce the liquidity of the day-ahead market.

Distorted day-ahead market prices will also create serious inconsistencies in futures markets, Dr. Papalexopoulos noted.