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Glossary · Energy industry & energy transition

Energy-Only Market (EOM)

energy-only market EOM electricity market electricity market design Capacity market Scarcity price security of supply flexibility

An energy-only market, or EOM for short, is an electricity market design in which suppliers earn their revenues essentially from electrical energy sold. Payment is made for the quantity of electricity delivered, typically in megawatt-hours. In a pure energy-only market there is no separate payment for merely providing firm capacity, as a capacity market provides. Power plants, storage facilities, flexible consumers and other participants must therefore cover their fixed costs, operating costs and investments through energy prices. To do so, they use forward market transactions, short-term spot markets and risk management.

Energy and capacity: what is remunerated

The central unit is the megawatt-hour as a quantity of energy. Prices are usually quoted in euros per megawatt-hour. This is to be distinguished from capacity, measured in megawatts. It describes how much electricity can be supplied or drawn at a given point in time. An example: a gas-fired power plant with 100 megawatts that runs only 50 hours a year sells just 5,000 megawatt-hours. In critical hours, however, it provides 100 megawatts. In an EOM, it receives no capacity payment for the remaining roughly 8,700 hours of operational readiness. It must cover its costs from the revenues earned in the hours it operates or hedge through contracts. One restriction also applies in an EOM: those who hold balancing capacity in reserve for the transmission system operator are paid for holding it. This is an ancillary service of grid operation and not a general capacity remuneration.

Price formation and scarcity signals

In an EOM, prices form according to scarcity. When a lot of generation with low variable costs is available, for example from wind and photovoltaics, wholesale prices fall. When demand is high and dispatchable generation becomes scarce, they rise. A scarcity price then reflects more than fuel costs. It shows the value of electricity at a moment when the system has hardly any free reserves left. Such price peaks are meant to indicate that additional flexible capacity, storage, load shifting and hedging contracts are becoming economically valuable.

This principle is anchored in law in the EU and in Germany. Under Article 10 of the EU Electricity Market Regulation 2019/943, there is neither a maximum nor a minimum limit on the wholesale electricity price. Transmission system operators may not take measures aimed at altering wholesale prices. Only harmonised technical bidding limits of the power exchanges are permitted. They are not supposed to unnecessarily hinder trading and rise through an automatic mechanism if they are at risk of being reached. In Germany, Section 1a(1) of the Energy Industry Act (EnWG) provides that the electricity price forms freely on the market according to competitive principles. The level of wholesale prices is not restricted by regulation there.

For the Europe-wide coupled day-ahead auction, a 2026 ACER decision sets reference values of plus 4,000 and minus 500 euros per megawatt-hour. If prices reach certain trigger thresholds, the upper limit is raised in steps of 500 euros and the lower limit is lowered in steps of 100 euros. The values applicable at any given time may therefore deviate from the reference values. Separate, considerably wider limits apply to intraday trading.

Distinction from the capacity market

The difference from the capacity market lies in what is remunerated. In a capacity market, the availability of capacity is explicitly paid for. In return, suppliers must demonstrably stand ready in defined situations. An EOM, by contrast, relies on price formation, contract markets and participants who manage scarcity risks themselves. Between the two poles there are further forms of a capacity mechanism. One example is the strategic reserve: it is held outside the regular market and used only in exceptional situations. For such reserves, the EU regulation requires that imbalances in the settlement periods of their dispatch be settled at no less than the value of lost load. This is meant to ensure that the reserve does not dilute the scarcity signal. If reserve capacity were regularly used to dampen prices, the EOM would lose part of its effect.

The distinction is often used loosely. A market with an energy-only basic principle also has a balancing group system and imbalance energy. In addition there are balancing energy, grid reserve, redispatch, technical connection conditions and regulatory oversight. The term answers above all one question: is firm generation and flexibility capacity financed through energy revenues or through an additional capacity payment? Real electricity markets are rarely pure textbook cases.

Current status in Germany

In 2016, Germany opted with the Electricity Market Act (Strommarktgesetz) for a further developed energy-only market, supplemented by reserves outside the market. Section 1a EnWG also originated at that time. This position changed fundamentally in 2026. According to the Federal Government, the Electricity Security of Supply and Capacity Act (StromVKG) entered into force on 22 July 2026 and introduces a capacity market. It remunerates suppliers already for keeping capacity available and initially covers the target year 2031. Tenders are planned for a total of eleven gigawatts of dispatchable capacity, with further rounds to follow in 2027 and 2029. A comprehensive capacity market from 2032 and the details of financing, for example through a possible levy from 2031, are to be regulated in a further law, expected in 2027. The wholesale market thus remains a market with free price formation. For Germany, however, the overall design can no longer be described as a pure EOM.

Why the price distribution is decisive

Electricity must be balanced physically at every instant. The quarter-hour is the settlement grid for balancing groups and trading products, not the time span of physical balancing. Deviations within seconds and minutes are absorbed by balancing energy. As the share of weather-dependent generation grows, the economic task changes. It is not enough to generate sufficient energy on an annual average. What is needed are resources that are available when wind and sun are insufficient or when the residual load rises quickly.

For the investment effect of an EOM, therefore, the distribution of prices over the year matters, not just the quantity traded. A storage facility earns from price differences between surplus and scarcity hours. A flexible industrial plant benefits if it can shift its electricity consumption away from expensive hours. A peaking power plant that rarely runs can be economically viable if its few operating hours bring high revenues. If scarcity prices are capped, or if investors expect such interventions, this calculation no longer works.

Missing money and security of supply

This is where the missing money problem comes in. It refers to the concern that energy prices are not sufficient to finance the capacity needed for security of supply. Possible causes are price caps, interventions in scarcity situations, too little flexibility on the demand side, regulatory uncertainty and the expectation of government rescue measures. Those who assume that extreme prices will not be allowed in an emergency invest less often in assets whose business model rests on precisely those hours. The EU regulation describes scarcity prices without caps as a means for suppliers to cover their costs on the wholesale market. It provides for capacity mechanisms only as a subsidiary instrument.

The equation “EOM means insecure supply” is nevertheless too crude. Security of supply does not depend on market design alone. It results from the power plant fleet, grid expansion, import possibilities, storage, demand flexibility, the quality of forecasts, reserve concepts and clear responsibilities.

Low and negative prices

Negative prices do not automatically mean that the market has failed. They show that at a given time more generation with low marginal costs is available than is demanded. Or they arise because plants keep running due to support rules, technical minimum output or heat extraction. Negative prices can incentivise flexibility, for example charging of storage, electrolysis or shifted consumption. They become problematic when support mechanisms reward generation regardless of the value of the electricity and thus distort price signals.

Renewable energies and forward markets

Wind and solar plants have low variable costs and push down the wholesale price in many hours. Their revenues therefore increasingly depend on the market value of their feed-in profile. The more similar plants feed in at the same time, the more the price falls in those hours. This rewards geographical spread, storage, direct marketing, flexible demand and a plant design that does not aim only at maximum annual generation. Support instruments can reinforce, weaken or partly mask these signals.

Moreover, the EOM does not consist solely of the spot market, even though the most visible prices arise there. Many quantities are hedged long beforehand through supply contracts, futures and other instruments on the forward market. Such contracts smooth price fluctuations but do not eliminate them. They shift risks between participants. A supplier with fixed-price customers hedges against high procurement costs. An operator of flexible plants can stabilise its revenues through long-term contracts.

Assessment

The debate about the EOM often mixes up two questions. First: how is electricity dispatched efficiently in the short term? Second: how does sufficient capacity emerge in the long term? For the short-term dispatch order, price formation based on variable costs works well. For investments in rarely used plants, what matters are credible rules, a sensible distribution of risks and open market access. Used precisely, the EOM does not denote a complete electricity system. It is a particular answer to the question of how firm and flexible resources are financed: payment is made mainly for energy delivered. Availability is remunerated only if it is reflected in market prices, contracts or clearly delimited additional mechanisms. Whether a system is secure, cost-effective and climate-compatible additionally depends on grid bottlenecks, reserves, support rules, CO₂ prices, permits and the flexibility actually available.

Sources

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Edited by eCMS on 11.11.2026 19:46

© 2026 Erik Schmidt. All rights reserved. Quotations with a link to the source are welcome.