June 23. 2024. 2:18

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In U-turn, Germany backs swift adoption of EU power market reform

Ahead of an EU summit in Brussels, the German government signalled readiness to swiftly adopt the EU’s proposed electricity market reform, abandoning previous calls to delay decisions until after the 2024 European elections.

The European Commission tabled a reform of EU electricity market rules on 14 March, seeking to reduce the impact of volatile gas prices on electricity bills and accelerate the deployment of renewables.

The proposal does not question the current design of electricity markets based on short-term markets, defended by countries like Denmark, Germany and Luxembourg.

France had initially called for more radical reform, saying the current marginal pricing system is “absurd” because it leaves fossil fuels like coal and gas dictate the price of electricity.

“The proposal, which is still relatively fresh, is, of course, an ongoing issue in the European Council,” a senior German official told the press ahead of the EU leaders’ meeting on 23 March, adding that leaders were already discussing it.

At the heart of the Commission proposal are long-term contracts designed to ensure visibility to investors and lower electricity prices for consumers and industry.

Under the proposed reform, public support for constructing new power plants must be formalised in a two-way Contract for Difference (CFD), with a price ceiling and a floor. When the market price of electricity rises above the ceiling, governments will earn the surplus. If they go below the floor, the state will step in to fill the gap, ensuring a guaranteed revenue for investors.

Germany initially resisted a push by France and Spain to adopt the reform swiftly, saying the decision needed time and should not be taken before the European elections in Spring 2024.

In Berlin, officials now believe the reform could be adopted swiftly as long as it is not too far-reaching and remains close to the Commission’s proposal.

“We can well imagine that the negotiation of the Commission’s proposal in the European Parliament and the Council will move forward quickly,” a senior German official said.

Draft conclusions from the Brussels summit confirm this.

“The European Council invites the co-legislators to reach prompt agreement on all relevant proposals to accelerate the green transition and to take work forward without delay on the proposed revision of the EU’s internal electricity market design to ensure its adoption by the end of 2023,” read the draft summit conclusions, seen by EURACTIV.

Yet, Germany remains cautious, warning other governments that a more profound reform of EU electricity market rules will require more time and analysis.

“If we want more far-reaching changes to the electricity market design, this will certainly require another long-term process,” the senior German official said, noting this would also require a full cost-benefit analysis.

EU unveils power market reform to tame volatile electricity prices

The European Commission published its proposal to reform the EU electricity market on Tuesday (14 March), focusing on countering volatile gas prices by providing consumers with more protection, boosting renewables and supporting demand-side measures.

Germany split on the proposal

Supporters of a far-reaching reform were disappointed with the Commission’s proposal, tabled last week.

The leader of the European Parliament’s far-left faction, Martin Schirdewan, said the EU has “shied away from reforming the electricity market instead of tackling the causes of its failure,” calling the Commission the “plaything of the lobbyists”.

According to Schirdewan, who leads the German far-left Die Linke faction in Parliament, the price-setting mechanism based on marginal pricing is the root cause of the market’s failure.

Germany’s industry cherishes the merit order and praised Brussels for upholding it. “The EU is well advised to optimise the electricity market with a sense of proportion,” said Holger Lösch, deputy chief of industry association BDI, who welcomed the proposals’ focus on long-term contracts.

Jens Geier, the head of the German socialist SPD party in Brussels, criticised the lack of an “industrial electricity tariff,” saying this would be key to the “global competitiveness” of energy-intensive industries.

The German renewable energy industry slammed the EU’s proposed power market reform, saying it goes “too far” and “massively interferes” with the electricity systems of EU member states.

“We reject the mandatory introduction of two-way contracts for difference at EU level,” said Simone Peter, German renewables lobby group BEE chief.

According to her, other countries successfully lobbied for an approach that could hurt Germany.

“For some member states, this form of marketisation may bring advantages. This is not the case for Germany,” she stressed.

Germany on collision course with France, Spain over EU power market reform

Three weeks before the European Commission tables its proposal to reform the EU’s electricity market, Germany’s position on the issue is still being fleshed out but initial signs already point to a looming clash with pro-reform countries like France and Spain.