May 23. 2024. 8:09

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European Parliament adopts ‘patchwork’ power market reform

The EU’s overhaul of the power market design, sparked by the 2022 energy crisis, was approved by Parliament, paving the way for new price stablisation rules to become law.

When a 2022 surge in gas prices – which dictate electricity prices at times of high demand – sent power prices through the roof across Europe, the EU responded with a reform of its power market rules.

What was initially billed as a significant overhaul was reoriented during negotiations into a collection of focused tweaks and a strengthened focus on consumer protection.

“As a socialist, I would like to say that we wanted to protect the consumer against the injustices that were taking place,” explained Nicolás González Casares, a Spanish centre-left lawmaker who chaired the power market reform.

There had been “unilateral contract changes and even people being disconnected from the grid,” he added.

The law is close to the finish line, with 473 EU lawmakers voting in favour and 80 against. All that remains is a rubber-stamp from EU countries, with little opposition anticipated.

Dialled down ambitions

The text’s broad support may be a result of its more modest ambitions. When the reform was launched, EU leaders challenged the fundamental principles of the power market: the merit order and the marginal pricing.

“This market system does not work any more,” European Commission President Ursula von der Leyen said in 2022.

Following intervention by experts, EU countries and industry lobby groups, the market’s essential characteristics were retained.

Greens’ negotiator Michael Bloss described the new text as a “small reform” and told journalists that “the finished law does not deliver what it set out to, the foundation of a 100% renewable power system.”

According to French lawmaker Christophe Grudler, Renew, the work on the European energy market was far from done. “We have to strengthen the common market in the coming mandate as we haven’t fully achieved this,” he told lawmakers in the hemicycle on Thursday.

The EU’s updated electricity market design will ensure a greater share of long-term power supply contracts. These are less susceptible to the price spikes that marked the 2022 energy crisis.

It achieves this by asking EU countries to support renewables – and new or renovated nuclear power plants – through so-called ‘contracts for difference’. These contracts guarantee power suppliers a minimum revenue, irrespective of market prices, while also putting a maximum cap on earnings.

Smaller companies and renewable developers can be incentivised by national governments to enter into long-term ‘power purchase agreement’ – which will bring additional price stability to the market.

The law allows national governments to subsidise coal power plants in times of crisis until 2028. This was a key demand of Poland – and prompted the Greens to desert the agreement.

Crisis measures

Given the context of the energy price crisis and the centre-left lead negotiator, the strong social provisions added to the market design come as no surprise.

A key measure is the new ‘safety switch’ for future crises. When wholesale power prices pass €180 per megawatt-hour – or retail prices surge 70% – the Commission can propose that EU countries declare an electricity price crisis.

Governments can then intervene in the power market to depress prices for 70% of industrial bills and 80% for households.

“To be honest, it’s a bit of cobbled-together patchwork of different things,” says Bloss, adding that the topic would need to be put on the agenda next Parliament.

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