The EU agreed on Thursday to reform its electricity market to stabilize consumer bills but also boost investment in low-carbon, renewable and nuclear energy – a key text to speed up its transition and preserve its industrial competitiveness.
The agreement, reached between member states and MEPs after a night of final talks, “will help us further reduce our dependence on Russian gas”, “stabilize markets in the long term” and enable “more electricity to be offered affordably”. “, summarized Spanish Energy Minister Teresa Ribera, whose country holds the rotating EU presidency.
Following the increase in electricity prices last year, this reform aims in particular to reduce the bills of households and businesses through long-term contracts – at a predetermined price – and thus smooth the impact of the volatility over time of gas prices.
In this context, states may choose to favor “exclusive” contracts for electricity from new renewable power plants.
Above all, the text – which still needs to be formally ratified by the states and Parliament – will provide more predictability for investors through the use of “contracts for difference” (CFD) at a price guaranteed by the state for any public investment support Production of carbon-free electricity (renewable or nuclear).
Under this mechanism, if the wholesale market price is above the fixed price, the electricity producer must return the additional revenue to the state, which can redistribute it to consumers. If the price is lower, the state pays compensation.
French satisfaction
CFDs should be applied for public financing of new power plants – but also under conditions for investments to extend the existence of existing nuclear power plants, according to the agreement, which leaves the door open for equivalent mechanisms with “equal effect”.
This point caused the greatest tension between the States and in the European Parliament, which was very divided over the extension of the existing nuclear mechanism.
Germany vehemently opposed this, fearing that competition from French electricity would become more competitive thanks to massive public support, while France sees CFDs as an essential tool to help repair its fleet in the future and regulate prices.
Paris had managed to impose its positions on Berlin at the end of October by adopting the states' common position, but MEPs defended drastic monitoring and limited coverage of CFDs on existing nuclear energy.
The final agreement “offers the possibility of stable prices in line with (production) costs and gives us the opportunity to ensure long-term financing of the transformation of our electricity system” by promoting both renewable energy and civil atoms, the French minister said for energy transition Agnès Pannier-Runacher.
“Socially fair”
When it comes to redistributing revenue from CFDs, another point of contention, the agreement offers “flexibility” to states.
They will have the opportunity to redistribute them to end users (companies, households), but also to finance investments in this sector or support programs to reduce bills – and strengthen the competitiveness of manufacturers, weighed down by oil price inflation.
The text also provides for the triggering of a crisis situation at European level in the event of another sustained price increase, allowing states to take price tag-like measures to protect vulnerable households and companies.
The European Council (which brings together states) will have the power to decide on such a crisis “on a proposal from the European Commission”, but measures adopted at national level must avoid “any distortion or undue fragmentation” of the Common Market.
Another sensitive issue: the “capacity mechanisms” that allow states to compensate for the unused capacity of power plants in order to ensure their continued operation and avoid future electricity shortages.
Several countries wanted to be exempted from the planned ecological requirements (CO2 emission limits), in particular Poland, which wanted to apply the instrument to its coal-fired power plants. Ultimately, an “extraordinary exemption” for these environmentally harmful power plants is possible, but temporarily and under the control of Brussels.
Finally, the text strengthens the protection of “vulnerable consumers in situations of energy poverty” who are at risk of power outages.
“Europe will have a socially fair electricity market,” said Socialist MEP Nicolas Gonzalez Casares, rapporteur of the text.