Lion Hirth comments on EU's Peak Shaving Proposal on Euractiv

Professor of Energy Policy Lion Hirth comments on the Commission proposal on peak shaving for an article in Euractiv. 

The European Commission's proposal involves introducing a new Article 7a of the Electricity Regulation that would allow EU countries to implement a "peak shaving product" as a response to the ongoing electricity crisis. This proposal emerged amid a political discussion on peak shaving, which gained traction in late 2022. The peak shaving product connects to the broader discourse on demand-side flexibility, which was studied by an ACER working group. This product allows EU countries to procure services from consumers without restrictions on consumer types. It involves consumers reducing their electricity consumption below a baseline, for which they are financially rewarded. However, there are concerns about manipulating the baseline to maximise profits and potential negative effects on the power system.

There are differing justifications for the peak shaving product between the Commission and the Council. The Commission aims to contribute to integrating renewable energy sources, system reliability, and grid stability. In contrast, the Council's main objective is to lower wholesale electricity prices. Hirth cautions against the Council's suggestion of manipulating the spot price through a peak shaving product.

The proposal has sparked debate over whether it is necessary, as existing mechanisms and markets already address system needs more precisely. The peak shaving product's focus on reducing spot prices could lead to problems such as price discrimination, inefficiency and reduced investment incentives.

To be beneficial, the peak shaving product should address small-scale assets currently excluded from existing markets. If designed as an emergency mechanism, certain requirements could be relaxed compared to other system services. Overall, careful design is crucial to avoid overlap with existing markets and ensure the product contributes positively to system stability and reliability.

Read the full article here.

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