The European Commission is proposing a reform of the current system, without radically restructuring it.
Brussels unveiled, Tuesday, March 14, its ways to reform the European electricity market without fundamentally restructuring it, by using long-term energy contracts to protect consumers and encourage investment in renewable energies and nuclear. The differences between the Twenty-Seven, particularly around the role of nuclear power, could complicate the negotiations on this text, even if the European Commission hopes for an agreement by next winter.
With wholesale electricity prices dependent on the cost of the last power plant used to balance the grid, mainly gas-fired power plants, the market soared last year in unison with gas prices following the war in Ukraine. But rather than a complete overhaul and strict decoupling of the price of gas and electricity, which France and Spain initially called for, the Commission intends to develop long-term contracts “for low-carbon energies”allowing consumers to smooth their bills while providing predictable revenues to suppliers.
Several countries opposed systemic reform
In fact, all the Member States remain committed to the functioning of “short term” of the market which, being highly interconnected, makes it possible to respond quickly to peaks in demand on a continental scale. Seven countries, led by Germany, opposed any systemic reform “urgently”.
The project, which will be negotiated between Member States and MEPs, also aims with these “long-term signals” to encourage investment in low-carbon energies, thus reducing the influence of gas prices. Until then, “we must structure contracts (…) in such a way as to decouple citizens’ bills from prices on the short-term wholesale markets“, observes the European executive.
Brussels wants in particular to facilitate the deployment of PPAs, over-the-counter electricity purchase contracts between two private players (producer and consumer) at a price decided in advance, so that companies “benefit from more stable prices for the production of renewable and non-fossil energy”. States should establish public guarantee schemes to cover buyers’ credit risks, allowing more companies to take out these contracts.
French manufacturers satisfied
The Commission also supports the use of “contracts for difference” (CFD) at a price guaranteed by the State: in this mechanism, the electricity producer must pay back the income earned if the spot price is higher, but contrario receives compensation in the event of a market decline. Such a system is already possible, and applies to most renewables in France.
In the afternoon, the Minister for Energy Transition, Agnès Pannier-Runacher, “welcomed” in a press release the European Commission’s proposal to reform the European electricity market. “It’s more of a happy surprise”reacted on Tuesday evening Nicolas de Warren, president of the Union of energy-using industries in France, representing 70% of the country’s industrial energy consumption.
