Brussels, 14 December 2023
EU Council: Reform of electricity market design: Council and Parliament reach deal
Today the Council and the Parliament reached a provisional agreement to reform the EU’s electricity market design (EMD). The reform aims to make electricity prices less dependent on volatile fossil fuel prices, shield consumers from price spikes, accelerate the deployment of renewable energies and improve consumer protection.
This deal is great news, as it will help us reduce even more the EU’s dependence on Russian gas and boost fossil-free energy to cut greenhouse gas emissions. Thanks to this agreement, we will be able to stabilise long-term markets, speed up the deployment of renewable and fossil-free energy sources, offer more affordable electricity to the EU’s citizens and enhance industrial competitiveness.
Teresa Ribera, Spanish Third Vice-President of the Government and Minister for the Ecological Transition and the Demographic Challenge
The proposal is part of a wider reform of the EU’s electricity market design, which also includes a regulation focused on improving the EU’s protection against market manipulation through better monitoring and transparency (REMIT). A provisional agreement on REMIT was reached on 16 November 2023.
Power Purchase Agreements (PPAs)
The Council and the Parliament agreed to give member states the possibility to exclusively support the purchase of new renewable generation, where conditions allow and in line with member states’ decarbonisation plans.
On voluntary standardised contracts, both institutions agreed to maintain their voluntary nature for member states. The provisional agreement also provides an assessment from the European Union Agency for the Cooperation of Energy Regulators (ACER) on the market for PPAs based on the information from the database provided for in the REMIT regulation.
Access to affordable energy during an electricity price crisis
Both co-legislators agreed to give the Council the power to declare a crisis, on the basis of a Commission proposal.
In addition, the provisional agreement provides the criteria for declaring a crisis, related to the average wholesale electricity price or a sharp increase in electricity retail prices.
On the measures to be adopted by member states once a crisis is declared, both institutions agreed to take into account the existing possibility to further reduce electricity prices for vulnerable and disadvantaged customers, based on current electricity directive. Furthermore, provisions aimed at avoiding undue distortions or fragmentation in the internal market are incorporated.
Protection from disconnections for vulnerable customers
The Council and the Parliament agreed to reinforce the measures to be put in place 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 energy efficiency directive taking appropriate measures.
Capacity remuneration mechanisms
Both co-legislators agreed to make capacity mechanisms a more structural element of the electricity market. In addition, they agreed to introduce a potential and exceptional derogation from the application of the CO2 emission limit for already authorised capacity mechanisms, where duly justified.
Contracts for Difference (CfDs)
Both co-legislators agreed to make two-way contracts for difference or equivalent schemes with the same effects as the model used when public funding in the form of direct price support schemes are involved in long term contracts.
Two-way contracts for difference would apply to investments in new power-generating facilities based on wind energy, solar energy, geothermal energy, hydropower without reservoir and nuclear energy.
The rules for two-way CfDs 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. The provisional agreement provides flexibility as to how revenues generated by the state through two-way CfDs would be redistributed. Revenues would be redistributed to final customers, and they may also be used to finance the costs of the direct price support schemes or investments to reduce electricity costs for final customers.
Next steps
The provisional agreement reached today with the European Parliament now needs to be endorsed and formally adopted by both institutions.
Background
The reform of the electricity market design proposes to amend the relevant electricity market legislation and to improve the Union’s protection against market manipulation through better monitoring and transparency (REMIT).
The Commission presented the proposals on the reform of the EU’s electricity market design on 14 March 2023.
- Council reaches agreement on parts of electricity market reform (press release, 19 June 2023)
- Council Regulation (EU) 2022/1854 of 6 October 2022 on an emergency intervention to address high energy prices
- Energy prices and security of supply (background information)
- EU response to Ukraine invasion (background information)
- Electricity market reform (background information)
- Energy prices and security of supply (timeline)
EU Parliament: Electricity market: deal on protecting consumers from sudden price shocks
-
EU electricity market will be more affordable and consumer friendly
-
“Contracts for Difference” to encourage energy investments
-
Vulnerable customers will be protected from having their electricity cut off
-
EU will have power to declare regional or EU-wide electricity price crisis
On Thursday, Parliament and Council negotiators informally agreed on the reform of the EU electricity market, to make it more stable, affordable, and sustainable.
To protect consumers against volatile prices, MEPs made sure they have the right to access fixed-price contracts, dynamic price contracts, and receive key information on the options they sign up to, banning suppliers from being able to unilaterally change the terms of a contract. This is to ensure that all consumers, as well as small businesses, benefit from long-term, affordable and stable prices and to mitigate the impact of sudden price shocks.
MEPs also secured the possibility that EU countries prohibit suppliers from cutting the electricity supply of vulnerable customers, including during disputes between suppliers and customers.
Contracts for Difference
The agreed text provides for so-called “Contracts for Difference” (CFDs), or equivalent schemes with the same effects, to encourage energy investments. In a CfD, a public authority compensates the energy producer if market prices fall too steeply, but collects payments from them if prices are too high. The use of CfDs will be allowed in all investments in new electricity production, whether from renewable or nuclear energy.
The deal also stipulates that Power Purchase Agreements (PPAs) may guarantee stable prices for consumers and reliable revenues for renewable energy providers. The European Commission will set up a marketplace for PPAs.
The Commission shall also assess the possibility of using the EU’s Renewable Energy Financing Mechanism to organise EU-wide renewable energy auctions to help achieve the 2.5% share of energy from renewable sources, in addition to the binding EU level target of 42.5 %.
Electricity price crisis
The agreed text sets out a mechanism to declare an electricity price crisis. In a situation of very high prices and under certain conditions, the EU may declare a regional or EU-wide electricity price crisis, allowing member states to take temporary measures to set electricity prices for SMEs and energy intensive industrial consumers.
Quote
Lead MEP Nicolás González Casares (S&D, ES) said:
“With this agreement, Europe will have a socially just electricity market that will better protect citizens, especially the most vulnerable, with measures to ensure affordable prices for citizens and businesses, and accelerate the energy transition. Parliament has achieved a market design that takes a step forward in the democratisation of energy. We have been able to work at lightning speed to achieve an agreement that responds to many of the failures exposed by the energy crisis and to the expectations of citizens.”
Next steps
The provisional agreement now needs to be approved by both Parliament and Council to become law. The Industry, Research and Energy committee will vote on the file during a forthcoming meeting.
Background
Energy prices have been rising since mid-2021, initially in the context of the post-COVID-19 economic recovery. However, energy prices rose steeply due to gas supply problems following Russia’s war against Ukraine in February 2022. High gas prices had an immediate effect on electricity prices, as they are linked together under the merit order system, where the most expensive (usually fossil fuel-based) energy source sets the overall electricity price.