A fundamental change in the way energy prices are set in the market and, consequently, the elimination of demand-side signals for market participants has been identified as a key disadvantage in a Greek model for changing the structure of the electricity market in Europe, according to a new study carried out by the EPICO Klimalnnovation institute from Germany in cooperation with Aurora Energy Research.

The study analyses the impact of Greek and Iberian models as the two currently discussed options and also explores a third option for building a future-proof market design based on merit order, by securing investments in renewables and allowing for stronger long-term hedging opportunities for consumers to shield them against price spikes and volatility.

According to the study’s findings, the “Greek model fundamentally changes how prices are set in the market, making major impact, as the price signal gives crucial information to market participants, showing levels of scarcity and guiding the dispatch.” It goes on to note: “As all renewables would fall under contracts for difference (CfDs), it [Greek model] would put an end to market-based renewables and hamper their system-friendly design,” adding demand-side flexibility is crucially needed for the future power market system.

Creating separate pools for technologies, with a part of them under a regulated income stream, “risks to impact cross-border trading,” while “the less generation reacts to the cross-border price signals, the less efficient the market coupling process is,” the study notes.