Explaining the European Electricity Market Reform: Advocacy Coalitions, Policy Learning and a Temporary Storm

Recent academic contributions have discussed the limitations and benefits of applying the Advocacy Coalition Framework (ACF) for analyzing EU policy processes. Among others, scholars maintain that negotiations constitute the backbone of EU policy making, and that this step is lacking from the ACF. Moreover, policy-learning takes place during the negotiations between various coalitions. Despite its numerous limitations, scholars have argued that the ACF provides a useful framework for meso-level analysis, which is lacking from the renowned macro-level theories for explaining EU policy making, including multi-level governance, intergovernmentalism and neofunctionalism. In this article, we investigate the role of policy-learning in the negotiations for the European electricity market reform and combine this with an assessment of the main advocacy coalitions that were formed during the policy process. During the energy crisis 2021-2022, energy prices in Europe skyrocketed. The EU and its member states reacted promptly with emergency measures of various kinds. At the same time, various actors called for more fundamental changes of EU's electricity market design. In October 2022, the European Council asked the Commission to develop a “structural reform of the electricity market”. In parallel, several member states presented different market design proposals. However, when the Commission launched its proposal for a revised policy package in March 2023, it did not comprise any changes to the main principles of the existing market design. Above all, the marginal pricing model was preserved as the fundamental institution of EU’s electricity markets. Hence, we ask: Why was the existing design of the electricity market preserved? We seek to understand why the reform did not fundamentally change the electricity market design. Since the market reform consists of several different legislations and a large set of policy instruments and regulations, we delimit our empirical case to the fundamental institution in liberalized electricity markets, namely the marginal pricing model. To answer our research question, we conduct qualitative interviews and document analysis of relevant reports, white-papers, minutes, consultation responses and others. This is used to analyze the policy preferences of the main actors involved in the policy process, seeking to identify the main advocacy coalitions that formed during the process. The actors included in our study are the EU member states represented through their Governmental positions, the European Parliament and relevant parties, interest organisations, market participants and electricity market experts. Our focus is to map the policy preferences of these groups and whether there was a shift in positions during the process. This involves a structural assessment of the arguments that were presented and which strategies and resources were employed. We expect several developments to be decisive for the final policy outcome, including: (1) Policy-learning, where various actors gained more knowledge about the electricity market design, (2) institutional path-dependency, and (3) market fundamentals, i.e. the development of whole-sale electricity prices. The policy process throughout 2023 was accompanied by decreasing electricity market prices, which weakened the political pressure for more radical policy reform. The findings aim to inform the literature on policy processes, energy policy and electricity markets.