Thursday, March 30, 2023

The EU launches its electricity market reform for the era of renewables

The European Commission presented this Tuesday its proposal to adapt the European Union’s electricity market to the era of renewables, with the aim of making energy cheaper, avoiding volatility peaks and gaining competitiveness in the global technological race towards a decarbonized economy.

“The current design (…) has provided an efficient and well-integrated market for many decades, but global supply shortages and Russia’s manipulation of our energy markets have caused many consumers to face massive increases in their bills,” he summarized in a roundtable. the European Commissioner for Energy, Kadri Simson, was released.

The EU electricity market began to liberalize and integrate in 1996 and, in the heat of the gas price crises of 2022 and its contagion to electricity prices, it will undergo a new major adjustment to face the coming decades. in which electricity will gain weight in the production system compared to fossil fuels.

The goal is for 70% of European electricity to come from renewable sources in 2030, compared to 22.3% in 2022 from solar and wind, to which is added 21.9% from nuclear, 10.2% from hydroelectric, 19.9% ​​from gas and 15.9% coal and 5.9% bioenergy.

The Commission, which has worked on its proposal with the capitals and will have to negotiate the final version with the Member States and the European Parliament, wants the new market to be operational in a year, although Germany advocates a slight adjustment now and a reform deeper with more time.

The Community Executive wants renewables to gain more weight in the electricity “mix” to the detriment of gas through long-term contracts between generators and consumers that guarantee profitability to encourage investment in sustainable sources, but that also yield lower and more stable prices .

The text maintains the marginalist pricing system in the intraday market so that the most expensive technology, generally gas, sets the price for the rest of the forms of generation, but promotes reducing exposure to this volatile market, making it easier for de facto, the price of gas can be decoupled from that of electricity.

Long term

To do this, Brussels proposes promoting long-term energy supply contracts through two formulas that currently exist but are hardly used.

Firstly, the proposal introduces incentives to facilitate the signing of purchase and sale contracts (PPAs) between private sector actors, in which industrial companies and energy companies agree to supply for a determined period of time at a previously agreed price. fixed.

Secondly, it introduces the so-called bilateral contracts for difference (CfD) in all state auctions with electricity generators using renewable technologies that have previously made investments supported by public funds.

In this type of contract, the State and the energy companies agree on a specific price to guarantee the firm a “stable source” of income. Thus, if the market price is lower than the one agreed, the public authorities pay the difference to the energy company; but if it is higher, it is the company that transfers the difference to the public coffers.

According to the approach of the Community Executive, the Member States will be obliged to “channel the excess income” that they receive when prices are high “directly to lower the electricity bills” of all consumers.


Investments not only in solar or wind energy, but also in nuclear technology, both in the expansion of existing power plants and in the creation of new plants, will be able to benefit from this type of contract, thus meeting the main demand in France, the largest atomic source promoter within the block.


The Commission also wants Member States to guarantee electricity supply to vulnerable consumers in case they cannot meet their bills and in its proposal allows capitals to “extend regulated retail prices to households and SMEs in case of crisis”.

The Community Executive also wants to encourage individuals who generate their own electricity, for example with photovoltaic panels, to be able to sell the surplus to their neighbors and not just to power companies.

capacity and storage

Brussels also plans to facilitate capacity and storage schemes, so that during consumption peaks more electricity of fossil origin can be generated or what has been stored can be poured into the system, as well as establishing demand reduction mechanisms in which a large consumer, for example an industrial plant, in exchange for interrupting its supply at times of peak demand.

Spanish proposal

Spain presented a working document for the reform, many of whose points have been retained in the Commission’s proposal and which also included the possibility of setting a fixed price for electricity generated by already amortized nuclear or hydraulic facilities.

Community sources pointed out that this idea has not been included in the proposal because this retroactive system to change the previously established price conditions would send a “bad signal for investors”.


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