March 29. 2024. 3:30

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Wind industry calls for caution as EU overhauls power market


As the European Union prepares to reform its electricity market, the wind industry has urged policymakers to avoid rocking the boat and keep as close as possible to the European Commission’s original proposal.

Brussels tabled an overhaul of the bloc’s power market rules on 14 March, aiming to tame volatile electricity prices that went through the roof last year after Russia invaded Ukraine.

The Commission sought to promote long-term contracts such as power purchase agreements (PPAs) and contracts for difference (CFD) to stabilise prices.

However, the Commission did not change the fundamentals of the EU market, which will remain based on the current marginal pricing system where cheap renewables and nuclear power are called in first to meet consumer demand.

The Commission proposal also did not retain the price caps for gas used in electricity generation implemented in countries like Spain and Portugal, which kept prices artificially low for consumers and harmed the finances of energy firms.

Other emergency measures adopted during the crisis, like the tax on windfall profits made by renewable energy producers who benefitted from high gas prices, will not be prolonged.

Those moves, supported by Northern EU countries, were welcomed by trade group WindEurope, which urged EU member states to stay as close as possible to the Commission’s original proposal.

“Europe now has to restore its reputation as an attractive and secure investment environment for renewables,” said Sven Utermöhlen, the chairman of WindEurope, who spoke on Tuesday (25 April) at the industry’s annual gathering in Copenhagen.

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.

Evolution rather than revolution

According to WindEurope, radical propositions like expropriating wind turbine developers – an idea floated by the Greek government – or market interventions aimed at syphoning excessive profits have spooked investors.

“Evolution” rather than “revolution” would be preferable, Utermöhlen said.

Other players in the wind industry share the same view. “We need to be pragmatic” and “fast”, said Danielle Jarski, chief officer for offshore wind at German energy utility RWE.

This was echoed by Spanish developer Acciona Energy, whose CEO Rafael Mateo warned against “changing the horse during the race”.

Jarski herself cautioned the industry not to lose sight of its larger goal – profitability. Over-reliance on long-term contracts like CFDs, which limit profits, or PPAs, which sell for a predetermined price, could result in “flawed designs of auctions” where successful bidders “end up with a winner’s curse,” she warned.

For Markus Becker, head of government affairs at GE, the entire green transition would be at risk if the current market structure was to change too radically.

Addressing the audience in Copenhagen, he called on policymakers to “help preserve, wherever we can, market elements” in the reform, saying they are key to “make investments possible.”

“We cannot scare away investors,” Becker stressed.

Spain in the driving seat

Among wind industry insiders in Copenhagen, many expressed worries about the prominent role Madrid will play in the upcoming negotiations to reform the EU power market.

Spain will assume the rotating presidency of the Council of the EU in the second half of 2023, saying it will aim to strike a political agreement on the reform before the end of its six-month tenure, which ends on 1 January.

Madrid has infuriated the electricity industry ever since it implemented a windfall tax in 2021 to ensure energy companies do not unduly profit from the gas crisis.

Investors were similarly spooked by the price cap on gas used for electricity production in Spain and Portugal – a so-called “Iberian exception” recently extended by Brussels due to the peninsula’s isolation from the rest of the EU electricity network.

Spain aims for electricity market reform deal during EU Council stint

Spain will seek a deal on the EU’s proposed power market reform during its six-month EU Council presidency ending on 31 December, a less hurried timetable than that of the European Commission.

While the Council presidency will oblige Madrid to act as an honest broker during the negotiations, Spaniards are poised to play a key role in the electricity market reform.

Nicolás González Casares, a Spanish lawmaker, will be the chief negotiator for the European Parliament on behalf of the left-wing Socialists and Democrats (S&D) group.

While González Casares has vowed to act in the “European interest” during the negotiations, he has similarly signalled openness to contributions from Southern European countries, such as Italy.

For the centre-right European People’s Party (EPP), it will be a Portuguese lawmaker taking part in the negotiations. Maria Graça Carvalho enhances the Southern European influence on the power market reform but has signalled support for industry positions in the past.

Michael Bloss, a young Green lawmaker from Germany, and Morten Petersen, a seasoned Danish liberal, are the other two key Parliament negotiators who are seen as open to the renewable industry’s views.

Meanwhile, the nationalist European Conservatives and Reformists (ECR) will be represented by Polish heavyweight Zdzisław Krasnodębski, whom experts expect will represent coal and nuclear interests in the negotiations. The Left will be represented by Marina Mesure, a French lawmaker.

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