June 21. 2024. 4:28

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EU aiming for ‘targeted’ reform of electricity market, energy chief says


The European Commission will present “targeted” proposals by mid-March to overhaul the EU’s electricity market, the bloc’s energy chief said on Monday (27 February), adding that the reform will focus on long-term power contracts for industry to mitigate price volatility.

The EU’s electricity market “has not been able to protect consumers from the gas market crisis,” which fueled a surge in power prices over the past two years, said EU Energy Commissioner Kadri Simson.

“The key direction of the reform will be to reduce the dependence of electricity bills from the price of gas” and adapt the power market to an energy system dominated by renewables, Simson said after a meeting of the EU’s 27 energy ministers in Sweden, which currently holds the bloc’s six-month rotating presidency.

The term “targeted” suggests the EU executive will not table a root-and-branch review of the bloc’s electricity market rules, which many countries argue has helped mitigate power prices during the gas crisis.

Earlier this month, a group of seven EU countries led by Germany urged the European Commission to keep its upcoming reform targeted and focused on measures that will enable the green transition while ensuring affordable energy for consumers.

France, meanwhile, appeared to favour a more radical overhaul, saying Europe needs to ditch the “absurd” marginal pricing system whereby the most expensive power plants – currently those running on gas – are fired up at the last moment to meet electricity demand.

Simson appeared to heed those calls, saying the reform will focus on offering long-term contracts to industrial consumers who are directly impacted by rising electricity bills.

“It has become clear that we need to complement short-term markets with a more important role for long-term instruments to shelter consumers from price volatility and give credible price signals to renewable investors,” Simson said.

“How will we do that? We will allow industry to take advantage of power purchase agreements that allow them to buy electricity at predictable prices,” she said.

“And where state aid is necessary, we will also promote contracts for difference” where governments intervene to cover the gap between a pre-agreed contractual price and the actual market price.

Seven EU countries call for cautious electricity market reform

A group of seven EU countries has called on the European Commission to keep its upcoming reform of the electricity market “targeted” and focused on measures that will enable the green transition while ensuring affordable energy for consumers.

Long-term contracts

Power purchase agreements (PPAs) and contracts for difference (CfDs) are supported by the seven EU countries favouring the targeted approach to the EU’s electricity market reform.

They are now openly backed by France, which says they should be extended to cover all low-carbon energy sources, including nuclear power.

“The idea is to allow [energy] suppliers to buy long-term coverage” that guarantees them “a fixed price over a period of 5, 10, or 15 years,” explained the cabinet of French Energy Transition Minister Agnès Pannier-Runacher.

“Consequently, consumers would have access to part of their supply at stable costs” rather than exposing themselves to short-term markets determined by gas prices, the ministry explained.

“This is why CfDs need to co-exist alongside PPAs – for there to be a public offering at a price that represents the full costs of a basket of [energy] installations,” the French source added.

According to Paris, the aim of the EU’s electricity market reform should be to “finance the entire energy transition in Europe” and give price signals to “secure long-term investments that apply to any low-carbon installation that contributes to the transition”.

In other words, the EU power market should be designed to support not only renewables but also low-carbon energies like nuclear power.

Speaking after the EU ministerial meeting on Monday, Simson showed openness to this.

“Contracts for difference will cover low-carbon or renewable installations and allow them also to promote future investments in these production units,” the commissioner replied when asked about financing for nuclear energy.

Discussions are still ongoing, she added, however, saying “one of the possibilities is to cover not only renewables but also all the low-carbon sources” of energy – a reference to nuclear power.

Paris drafts European ‘nuclear alliance’

French energy transition minister Agnès Pannier-Runacher will meet on Tuesday (28 February) with twelve counterparts in Stockholm to discuss the potential launch of a brand new “nuclear alliance” within the EU.

Moving forward

A more targeted reform of the EU’s electricity market, focused on long-term contracts, might also help conclude negotiations before the European Parliament elections next year.

France and Germany have clashed on the timetable of the reform, with Paris pushing for a quick deal before the end of the year and Berlin preferring to wait until after the EU elections in spring 2024.

For its part, the Swedish EU presidency is ready to “take things as far as possible” after the European Commission tables its proposal on 16 March, said Ebba Busch, the Swedish minister for energy, business and industry, who chaired the meeting in Stockholm.

“We should see the long-term measures as a sort of emergency measure as well,” Busch explained, saying the electricity market overhaul is being envisaged as part of the EU’s long-term answer to the energy crisis.

Simson, meanwhile, emphasised that the reform “must give clear signals for future investments” in renewable energies to replace fossil fuels.

“We need also to unlock opportunities for distributed energy sources coming from renewable communities and self-production and to incentivise innovative forms of back-up like demand reduction and flexibility needed to balance variable renewables,” the commissioner said.

Another objective will be to “reinforce the right of consumers” so that “they have better access to information and a greater variety of offers”, including the option of choosing “low-risk contract schemes” that are immune from market fluctuations, Simson said.

Electricity market reform: Paris challenges Berlin on the timetable

Paris wants the EU’s electricity market reform completed by the end of the year, the French energy minister’s office said on Friday (24 February), challenging Berlin’s preference to wait until the 2024 European elections.