The Council and the European Parliament have reached a preliminary agreement on reforming the structure of the EU electricity market. Electricity market reform, as envisioned, is expected to further decouple electricity prices from volatile fossil fuel prices, protect consumers from spikes in charges, accelerate the deployment of renewable energy, and enhance consumer protection. Proposals for acts on this reform were presented by the European Commission on March 14, 2023.
Electricity market reform
Electricity market reform is the EU’s long-term response to the 2022 energy crisis. Despite a fairly large share of renewables, spikes in fossil fuel prices (especially gas) have sent electricity prices soaring. The crisis was caused by the way the EU electricity market works: the price of energy is based on the price of the fossil fuels used to produce it.
The main goals of the reform are:
- Better consumer protection;
- greater stability for companies;
- more green electricity.
The agreement on electricity market reform is part of a broader campaign to change the structure of the EU electricity market. It also consists of a regulation on improving protection against market manipulation through better monitoring and greater transparency (REMIT). A preliminary agreement on the REMIT regulation was reached on November 16, 2023.
Electricity market reform and RES development
Member states, as envisioned in the planned reform, will only be able to support the purchase of newly generated energy from renewable sources if conditions and national decarbonization plans allow. The new regulations will also make it easier to bring renewable energy into the system. It will be easier to predict how much will be generated (thanks to new, transparency-providing obligations for system operators and better monitoring of the energy market). This will keep prices under control and meet the ambitious climate goals that the EU formulated in the “Ready for 55” package.
The Council and the European Parliament also agreed that standardized contracts in member states would remain voluntary. The preliminary agreement stipulates that the European Union’s Agency for the Cooperation of Energy Regulators (EACEA) will be responsible for the implementation of the agreement. The Agency for the Cooperation of Energy Regulators (ACER) will conduct an assessment of the PPA market based on information from the database referred to in the REMIT regulation.
What is the significance of electricity market reform for consumers?
The European Council will have the right to declare an electricity price crisis at the request of the European Commission, according to the proposed legislation. The regulations also set criteria for such an announcement related to the average price of energy in wholesale markets or a sharp increase in retail prices. On the issue of measures to be taken by member states in the event that an electricity price crisis is declared, it was agreed that it would be possible, on the basis of the current Electricity Directive, to reduce prices for vulnerable and disadvantaged customers.
Provisions have also been introduced to avoid unnecessary distortions and fragmentation in the internal market. In addition, the Council and the European Parliament have agreed that the measures applied by member states to vulnerable consumers and those affected by energy poverty will be more favorable. To this end, the definition of energy poverty was clarified with reference to the new directive, which provides for appropriate measures.
Electricity market reform – contracts for difference
The Council and the European Parliament have agreed that two-way differential contracts or equivalent models with the same effects will be the model used when public financing in the form of direct price support schemes is provided for in long-term contracts. The two-way contracts for difference will be for investments in new production facilities based on wind, solar, geothermal, tankless hydro and nuclear power.
The regulations on two-way contracts for difference are not expected to take effect until three years after the regulation takes effect. This transition period will protect legal certainty for projects already underway. The agreed text made more flexible the way the state would redistribute the income it would receive from two-way contracts of difference. Revenues are to be distributed to end users and can be used to fund direct price support schemes or for investments to reduce electricity prices for end users.
When will electricity market reform occur?
The Electricity Market Reform Regulation will take effect after it is officially approved and adopted by the Council and the European Parliament.