In today’s energy markets, value is no longer defined primarily by volume or capacity. It is defined by flexibility. The ability to respond quickly, reliably, and economically to changing system conditions has become the most scarce and most valuable resource. In an integrated energy system dominated by variable renewables, constrained infrastructure, and volatile fuel markets, flexibility functions as a currency that determines who absorbs risk and who transfers it.
Traditionally, energy systems were built around predictability. Baseload generation ran continuously, demand followed stable patterns, and fuel supply was secured through long-term arrangements. Flexibility existed, but it was secondary, provided by peaking plants, hydro reservoirs, or limited storage. Today, this hierarchy has reversed. Variability is structural, and flexibility is no longer optional; it is the system’s primary stabilising force.
Electricity markets reveal this shift most clearly. Wind and solar generation inject large volumes of low marginal-cost power, but their output fluctuates with weather rather than price. This variability must be balanced in real time. The assets that can respond quickly, gas turbines, hydro units, batteries, and demand response, therefore set the effective value of energy during stress periods. Prices are increasingly driven not by average production costs, but by the cost of deploying flexibility when it is needed most.
Gas plays a dual role in this new currency system. It provides flexibility to the power sector, yet it also requires flexibility within its own network. Storage, linepack, and LNG cargoes serve as buffers, but their availability is limited and increasingly contested. When gas flexibility tightens, the cost of power flexibility rises in tandem. The currency appreciates, and prices adjust accordingly. Flexibility scarcity thus transmits across fuels, reinforcing systemic volatility.
South-East Europe exemplifies the consequences of limited flexibility. Renewable capacity has expanded rapidly across the region, while investment in storage, demand response, and fast-ramping assets has lagged. The result is a system that can produce abundant energy under favourable conditions, yet struggles to manage variability when conditions change. In such an environment, even modest disruptions can command a high flexibility premium, reflected in sharp price movements.
Flexibility also operates across borders. Interconnectors allow regions to share balancing resources, effectively importing flexibility from neighbours. When these links are unconstrained, they reduce volatility and spread risk. When they bind, flexibility becomes localised, and prices diverge sharply. Markets reveal, through price signals, where flexibility is abundant and where it is scarce. These signals guide investment, often more effectively than policy targets.
Financial markets have adapted to this reality. Products and strategies increasingly focus on optionality rather than fixed positions. The value of assets is assessed in terms of response speed, ramping capability, and reliability under stress. Long-term contracts incorporate flexibility clauses, while short-term markets capture scarcity rents during critical periods. Flexibility is monetised explicitly, rather than treated as an implicit system feature.
For policymakers, recognising flexibility as a currency changes the framing of energy transition debates. Adding renewable capacity without adding flexibility increases volatility and transfers risk to consumers and system operators. Conversely, investing in flexibility can stabilise prices and reduce the need for intervention. The challenge lies in designing markets and regulations that reward flexibility appropriately without distorting signals.
In South-East Europe, the stakes are particularly high. The region’s role as a transit and balancing zone means that its flexibility resources serve not only domestic markets, but the wider European system. Underinvestment in flexibility therefore has regional consequences, amplifying volatility beyond national borders.
Elevated by clarion.energy
