Eurelectric position paper Eurelectric represents the interests of the electricity industry in Europe. Our work covers all major issues affecting our sector.Our members represent the electricity industry in over 30 European countries. We cover the entire industry from electricity generation and markets to distribution networks and customer issues. We alsohave affiliates active on several other continents and business associates from a wide variety of sectors with a direct interestin the electricity industry. We stand for The vision of the European power sector is to enable and sustain:-A vibrant competitive European economy, reliably powered by clean, carbon-neutral energy-A smart, energy efficient and truly sustainable society for all citizens of Europe We are committed to lead a cost-effective energy transition by: investingin clean power generation and transition-enabling solutions, to reduce emissions and actively pursue efforts tobecome carbon-neutral well before mid-century, taking into account different starting points and commercial availability of key transformingthe energy system to make it more responsive, resilient and efficient. This includes increased use of renewableenergy, digitalisation, demand side response and reinforcement of grids so they can function as platforms and enablers forcustomers, cities andcommunities; acceleratingthe energy transition in other economic sectors by offering competitive electricity as a transformation tool fortransport, heating and industry; embeddingsustainability in all parts of our value chain and take measures to support the transformation of existing assetstowards a zero carbon society; innovatingto discover the cutting-edge business models and develop the breakthrough technologies that are indispensableto allow our industry to lead this transition. Contacts:Tim VOGT–Advisor Retail Markets–tvogt@eurelectric.orgSilvia COSSA–Trainee–scossa@eurelectric.org Customers & Retail Services CommitteeWorking GroupRetail Market DesignWorking Group Customers& New Services Retail Market Functioning:Q&A Paper A Eurelectricpositionpaper BACKGROUND This paperwas compiledin collaboration with Eurelectric membercompaniesfrom severalEuropean Member States. Itaimsto provideexplanationsand guidanceto interestedstakeholdersonthe essentials of retailmarkets,their interactionwith wholesale markets, and •factorsdeterminingtheprice of electricity;•components of retail pricesandconsumer bills(energy supply; network; taxes/levies);•key actors and theirresponsibility androle inelectricity markets,with a closer lookatenergy suppliers;•therange ofdifferentelectricity price contracts; List of contents 1.What measures could reduce the indirect effect of gas spot marketpriceson electricity retail prices and on electricity bills withoutchangingthe fundamentals of the electricity market design(competitive markets, marginal pricing and the merit order model inspot markets)?...................................................................................................12.What determines the price of electricity in Europe?.......................................33.What are the components of the final electricity price for consumers?........54.Who are the key actors in EU electricity markets and what is their role?A short................................................................................................................85.What role does an energy supplier play?.......................................................106.Compact overview: What is hedging and why is it important?.....................117.What types of contracts can consumers choose from?................................128.Why do neighbouring European Member States have different prices?......159.Why is a more sustainable, low-carbon energy system cheaper forconsumers?......................................................................................................1710.How can consumers protect themselves from volatile energy prices?.......1811.What can EU Member States do to help reducing the price of electricitybills?..................................................................................................................1912.Does EU legislation correctly define roles and responsibilities for newactors................................................................................................................20 1.What measures could reduce the indirect effect of gas spot market prices onelectricity retail prices and on electricity bills without changing the fundamentals I.Marginal pricing: how the system works Under Europe’s day ahead market, generators submit bids indicating how much electricitythey can supply and at what marginal cost. These bids are ranked from the cheapesttechnologies (wind, solar, hydro, nuclear) to the most expensive, typically fossil fuel plants asthese face additional costs (mainly fuel and carbon pricing). Demand is met by moving upthis merit order, and the