For decades, energy economics was built around capacity. Installed megawatts, pipeline diameters, storage volumes, and reserve margins were treated as the primary indicators of system strength. If capacity exceeded peak demand with an adequate buffer, stability was assumed. Prices might fluctuate, but the system was fundamentally secure. That logic no longer holds. In today’s European energy system, capacity without flexibility is increasingly irrelevant. What now determines value, stability, and risk is the ability to respond.
Flexibility has become the system’s most scarce and most valuable resource. It functions as a currency, implicitly priced through volatility, scarcity rents, congestion spreads, and balancing costs. Those who possess flexibility can monetise stress. Those who lack it are exposed to price shocks and forced adjustment. This shift is not theoretical; it is already embedded in market behaviour across electricity, gas, and, indirectly, oil-linked logistics.
The structural driver is variability. Europe’s energy transition has replaced a controllable supply system with a probabilistic one. Wind and solar generation do not respond to price signals; they respond to weather. Forecasting has improved, but uncertainty remains irreducible. Every additional unit of intermittent capacity increases the need for assets that can react when reality deviates from expectation. This need grows non-linearly. Flexibility demand accelerates faster than renewable capacity itself.
Electricity markets are where this change is most visible. Price spikes are no longer primarily signals of energy scarcity in aggregate. They are signals of response scarcity at specific moments. Energy may be abundant on average, but if it cannot be delivered, ramped, or absorbed quickly enough, prices explode. Flexibility scarcity, not fuel scarcity, becomes the marginal driver.
Speed is the first dimension of this new currency. Assets that can respond within seconds or minutes command disproportionate value during stress. Batteries, fast-ramping gas turbines, hydro units with flexible dispatch, and certain forms of demand response shape intraday and real-time price formation. Their economic relevance is not defined by how much energy they supply over a year, but by when and how quickly they can act.
However, speed alone is insufficient. Short-duration flexibility can stabilise the system momentarily, but it cannot sustain it through prolonged stress. Batteries discharge and must recharge. Demand response has limits. If imbalance persists for hours or days, the system requires depth as well as speed. This introduces the second dimension of flexibility currency: endurance.
Endurance is provided by assets such as gas storage, linepack, hydro reservoirs, and flexible generation with secure fuel supply. These resources do not respond as quickly as batteries, but they can maintain output over extended periods. They underpin system resilience during cold spells, heatwaves, renewable droughts, or prolonged infrastructure outages. Without endurance, fast-response assets merely delay adjustment rather than prevent it.
The third dimension is availability under constraint. Flexibility has value only if it can be activated when needed. Regulatory barriers, fuel logistics, network congestion, and market design can render nominal flexibility unusable. An asset that exists on paper but cannot respond due to permitting rules, grid limitations, or balancing misalignment is economically equivalent to no flexibility at all. Markets price this reality ruthlessly.
Gas illustrates all three dimensions simultaneously. Gas-fired generation provides speed and, when fuel is available, endurance. Gas storage provides depth. Linepack offers short-term buffering. When these elements function smoothly, power markets exhibit relative stability even under renewable variability. When gas flexibility tightens, due to LNG competition, infrastructure constraints, or policy distortion, power volatility increases sharply. Gas is therefore both a flexibility provider and a flexibility risk.
South-East Europe highlights the consequences of flexibility scarcity more clearly than most regions. Renewable capacity has expanded rapidly, but investment in storage, demand response, and grid reinforcement has lagged. The region relies heavily on gas-fired generation and cross-border imports for balancing. When these channels are constrained, prices react violently. Volatility is not an anomaly; it is the system pricing the absence of flexibility.
Flexibility also operates across borders. Interconnectors allow regions to share balancing resources, effectively pooling flexibility. When borders are unconstrained, volatility is diluted. When they bind, flexibility becomes localised, and prices diverge sharply. Cross-border congestion therefore acts as a tax on flexibility, increasing its local value while reducing system-wide efficiency.
Financial markets have adapted faster than policy to this reality. Traders and investors increasingly value optionality, responsiveness, and reliability over sheer capacity. Assets are assessed based on their contribution to flexibility rather than their annual output. Revenue streams derived from scarcity events, balancing services, and congestion rents are no longer viewed as incidental; they are central to the business case.
This shift challenges traditional investment narratives. Adding renewable capacity without adding flexibility can depress average prices while increasing volatility. Such systems appear cheap on average but expensive at the margin. Consumers experience price shocks, and policymakers respond with intervention, further distorting signals. By contrast, systems that invest in flexibility may exhibit higher average costs but lower volatility and greater resilience. Markets increasingly reward the latter.
Policy frameworks struggle with this trade-off. Many support schemes prioritise volume and capacity additions, underweighting flexibility. Price caps and market interventions suppress the very signals that would incentivise flexibility investment. The result is delayed adjustment and accumulated stress. When intervention is eventually overwhelmed, volatility re-emerges more violently.
In South-East Europe, this tension is acute. The region is often asked to integrate renewables rapidly while maintaining affordability and security with limited fiscal and infrastructural resources. Without clear and credible flexibility incentives, volatility becomes the default adjustment mechanism. Prices rise until behaviour changes, demand adjusts, or political intervention occurs.
Flexibility as a currency also reshapes industrial strategy. Energy-intensive consumers increasingly value predictability over low average prices. Access to flexible contracts, on-site generation, storage, or demand response becomes a competitive advantage. Industries that cannot adapt are exposed to price shocks that undermine margins and investment planning.
At the system level, flexibility determines who bears risk. When flexibility is scarce, risk is pushed onto consumers through price volatility or onto governments through intervention. When flexibility is abundant, risk is absorbed by assets designed to manage it. Markets reveal this allocation through prices, spreads, and volatility patterns.
The core lesson is that capacity alone no longer defines system strength. A system with ample generation but insufficient flexibility is fragile. A system with moderate capacity but high flexibility can be resilient. This inversion is one of the most important economic realities of the energy transition.
Flexibility is already being priced, whether policymakers acknowledge it or not. It appears in scarcity rents, balancing costs, congestion spreads, and volatility premia. Suppressing these signals does not eliminate the need for flexibility; it merely delays its provision.
Elevated by clarion.energy