The EU agrees on a reform of the electricity market that moves away from fossil fuels
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The community institutions closed the reform of the electricity market early this Thursday, one of the most important files agreed upon during the Spanish Presidency of the Council of the European Union (EU). With the text adopted between the Council and the European Parliament, the bloc protects itself against future crises and episodes of price volatility such as those unleashed after the Russian invasion of Ukraine, by modifying the pricing system so that the costs of fossil fuels do not have such an impact on consumers’ electricity bills.
“Thanks to this agreement, we will be able to stabilize markets in the long term, accelerate the deployment of renewable and fossil-free energy sources, offer more affordable electricity to EU citizens and improve industrial competitiveness,” highlighted the third and Minister for the Ecological Transition, Teresa Ribera, in her role as Spanish presidency of the Council. The final text has been negotiated in record time, after a ten-hour meeting and barely two months after the “political agreement” was reached by the Member States. Now, the reform must receive the approval of the Twenty-Seven and the European Parliament.
With the new regulations, the EU wants to promote the deployment of renewable energy on the continent and is committed to regulation with better monitoring and transparency. In addition, the reform will give Member States the possibility of promoting the purchase of new renewable generation when conditions allow and in line with the bloc’s decarbonization plans. Regarding voluntary standardized contracts, both institutions agreed to maintain their voluntary nature for European countries and also foresee an evaluation by the European Union Agency for the Cooperation of Energy Regulators (ACER) on the market for power purchase agreements. energy based on information from the database provided in the REMIT regulation.
In the negotiation with the European Parliament, the text agreed by the Member States has hardly changed. The main obstacle during the negotiations were the support measures for nuclear power plants requested by France – a country with a great interest in this energy, since it contributes a high percentage of its energy ‘mix’ – and Germany’s demands that the The most polluting plants could benefit from aid to guarantee supply.
Both co-legislators have agreed to make capacity mechanisms a more structural element of the electricity market and introduce a potential and exceptional exception to the application of the CO2 emissions limit for capacity mechanisms already authorized, when duly justified.
Protection against crises
The agreement grants European countries safeguards in the event of a crisis. The European Council may declare an emergency situation through a proposal from the Community Executive and establishes the criteria for declaring it in relation to the average wholesale price of electricity or a sharp increase in retail electricity prices.
Regarding the measures that Member States must adopt once the crisis is declared, both institutions agreed to take into account the existing possibility of *further reducing electricity prices for vulnerable and disadvantaged customers*, based on the current electricity directive. In addition, provisions are incorporated to avoid undue distortions or fragmentation in the internal market.
The Council and Parliament have also agreed to strengthen the measures to be implemented by member states to*protect vulnerable and energy poor customers, including the addition of the definition of energy poverty accompanied by a reference to the new directive of energy efficiency that takes appropriate measures.
Contracts for difference
Both co-legislators agreed to enter into two-way contracts for differences or equivalent systems with the same effects as the model used when public financing in the form of direct price support systems is involved in long-term contracts.
Bidirectional contracts for difference would apply to investments in new power generation facilities based on wind energy, solar energy, geothermal energy, damless hydroelectric energy and nuclear energy.
The rules for these two-way projects will only apply after a transition period of three years after the entry into force of the regulation, in order to maintain legal certainty for ongoing projects.
Likewise, it states that the income from these contracts would be redistributed to end customers and could also be used to finance the costs of direct price support plans or investments to reduce electricity costs for end customers.
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