The European electricity market was designed for a world that no longer exists.
Not in the vague, hand-wavy sense that “things have changed.” In the precise, structural sense that the market’s core mechanism — marginal cost pricing of dispatchable generation — assumes a grid architecture that renewables have already dismantled.
The design assumption
Merit-order dispatch works when every generator has a meaningful marginal cost. Gas is expensive. Coal less so. Nuclear, cheaper still. The market clears at the price of the last unit needed to meet demand. This is elegant. It’s efficient. And it made perfect sense when every electron came from a fuel-burning turbine.
Renewables have near-zero marginal cost. When they’re generating, they push everything else down the merit order. When they’re not, gas sets the price. The result isn’t a broken market — it’s a market optimizing for conditions that no longer apply.
What this means in practice
The symptoms are familiar: price volatility, negative pricing events, capacity markets bolted on as afterthoughts, and a growing gap between what generators need to stay solvent and what the market is willing to pay them.
These aren’t bugs. They’re the predictable output of a system whose assumptions were invalidated by the thing it was supposed to enable.
The market was designed to optimize fuel-based generation. It’s now being asked to optimize a system where the dominant generators have no fuel cost. That’s not a tuning problem. It’s a model problem.
The structural parallel
This is the same pattern I see in organizations. A system designed for one set of conditions continues operating after those conditions change. Everyone treats the symptoms — the volatility, the misalignment, the workarounds — as problems to solve. Nobody questions whether the model itself is the problem.
You can’t reform your way from a marginal-cost market to one that properly values flexibility, storage, and demand response. The architecture has to change. The reform conversation keeps trying to make the old model accommodate new physics. The physics don’t care.
What’s actually needed
The market needs to price what actually matters in a renewable-dominant grid: flexibility, reliability, and locational value. Not energy at the margin, but capacity when and where it’s needed.
This isn’t a radical claim. It’s engineering. But it requires admitting that the current architecture isn’t fixable — it’s replaceable. And that’s a harder conversation than tweaking price caps.