French electricity union shares EU market reform suggestions
EXCLUSIVE: Lowering electricity prices and offering greater visibility to investors are the two key objectives of the French Electricity Union (UFE) for the upcoming reform of EU electricity market rules, said the union’s president.
The European Commission is set to present a proposal on 14 March to reform the EU’s electricity market, after a difficult year marred by rising prices caused by the effects of the pandemic and the war in Ukraine.
A public consultation closed on 13 February to collect the views of market players. Among the most eagerly awaited in France were comments from the French electricity union (UFE), which brings together more than 500 companies in the electricity sector, including power producers, network managers, and providers of energy efficiency services.
According to the president of UFE, Christine Goubet-Milhaud, the EU should aim to pass its reform as early as 2023, with two key and interrelated objectives: “preserving the achievements of the European electricity market” and “offering more visibility to investors and consumers on electricity prices”.
The lack of investor visibility is nothing new. The issue already came up under the previous European Commission headed by Jean-Claude Juncker during talks on the EU’s climate and energy targets for 2030 – the so-called ‘Clean Energy Package’.
“Already during the negotiations on the ‘Clean energy package’, including discussions on capacity mechanisms, we were warning about the lack of medium and long-term price signals for investors in low-carbon electricity capacities,” Goubet-Milhaud said.
“But at the time, the European Commission did not want to hear anything,” she told EURACTIV France.
The EU’s climate and energy goals have since been raised again and complemented with the REPowerEU plan – a more ambitious framework the Commission put forward following the pandemic and the war in Ukraine.
In its conclusions, the French electricity union is thus calling on the EU to expand its “toolbox” to improve visibility on future trades, remove the obstacles to longer-term private contracting and develop public regulation tools.
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Power purchase contracts
On future trades that make it possible to buy or sell electricity years before it is delivered, the union proposes to create a “long-term product quotation”, which is a contractual framework that can extend beyond four years.
More, transmission system operators must be allowed to issue interconnection rights that span a longer period than the current one-year period, the UFE said, adding that this must come with a rule change that ensures it can still be paid for.
Regarding power purchase agreements – a long-term contract under which a business agrees to purchase electricity directly from a renewable energy generator – the UFE wants to include “all low-carbon technologies” under those.
While this type of contract already exists, “it is not adapted to all types of consumers”, Goubet-Milhaud stressed.
Her federation thus suggests that certain consumers, particularly the “smallest” ones, be able to join “purchasing groups” to sign contracts.
It also recommends extending the establishment of public guarantee funds to cover cases where co-contractors default on their payments, so that both producers and buyers can access them.
Still, Goubet-Milhaud warns that these contracts “will not be sufficient to guarantee the achievement of the French objectives of decarbonisation and renewal of the electricity mix” contained in the country’s multiannual energy programme, which will be updated in 2023.
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Contracts for difference
Regarding contracts for difference (CfD), the federation is “very much in favour” of extending them to all low-carbon energies, including with regard to capacity and flexibility.
Such a mechanism would give EU countries enough revenue to offset or mitigate rising consumer prices by redistributing the difference between market prices and the reference price agreed to by the parties.
According to UFE , this requires an amendment to the 2019 electricity directive, to ensure the difference between the CfD reference price and the market price is returned to all French consumers, including households, local authorities, businesses and the industry.
The 2019 directive also lays down rules for public intervention in the setting of prices for electricity supply. According to Goubet Milhaud, “standardisation of these mechanisms would make it possible to avoid out-of-market taxation such as those currently in place on the rents of sub-marginal power plants”.
In parallel, the federation argues that it would be desirable to integrate capacity mechanisms, such as the one in France, “structurally […] into the market design [with] a simplified and automatic approval process subject to compliance with standard criteria”.
These mechanisms make it possible to secure the intermittency of renewables by modulating electricity consumption according to the most essential uses.
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However, making changes only to the wholesale market would not be sufficient to reduce the bills of consumers, households and companies.
The UFE is thus calling on regulators to allow a “broader coverage” of activities for energy retail companies so that they “can demonstrate their robustness in the face of market price variations”, Goubet-Milhaud said.
This could involve cash flow obligations or even stress tests, the federation’s president explained. In doing so, energy retailers could also “reward customers who consume less at times when the system is under pressure,” she added.
In a similar vein, Goubet-Milhaud calls for a regulatory framework which is adapted to the development of demand-side flexibilities to optimise the electricity system.
“This is a structural reform, which the Commission cannot back down from”, she stressed.
Yet, due to the current uncertainties around the supply of fossil fuels, the availability of nuclear power, the variability of hydroelectric production and the delay in the deployment of renewable energies, “the next few winters will remain tense,” she predicted.
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