Electricity market design under increasing renewable energy penetration: Misalignments observed in the European Union

The ongoing debate on European Union (EU) electricity market design has focused on whether the existing wholesale market design is fit-for-purpose. However, more elements of market design, beyond the wholesale price signal, should be examined. We demonstrate that misalignments occur between the integration of renewables and a wide range of existing market coordination modules, including the wholesale market, the retail market, and network regulation. Given the multi-level governance of the EU power sector, misalignments also exist between member states' renewable support schemes and EU-level coordination modules, namely market coupling and EU Emissions Trading System (ETS). Ignoring such systemic frictions makes reform proposals ineffective and leads to forward misalignments.