21 May 2024 10:23
Consumers across the EU will now be able to benefit from more stable energy prices, less dependency on the price of fossil fuels and better protection from future crises, on the way to a carbon-free European Union.
Today marks an EU milestone towards a carbon-free and greener future for all. With the adoption of the electricity market reform, we are empowering consumers, ensuring security of supply, and paving the way for a more stable, predictable, and sustainable energy market.
Tinne Van der Straeten, Belgian Minister for Energy
More stable and predictable energy prices while ensuring efficient market functioning and avoiding distortions of the internal market
Power purchase agreements (PPAs) are long-term contracts that provide stability for customers and investors; the updated rules promote their uptake and cut unnecessary red tape and charges. In line with their decarbonisation plans, member states may further support investment in renewables under power purchase agreements, including by setting up guarantee schemes.
Moreover, member states will also use two-way contracts for difference (CfDs), or equivalent schemes with the same effects, for their direct price support schemes, in order to support new investments in electricity generation and make sure electricity prices are less affected by price volatility of fossil fuel-based markets.
Under a two-way contract for difference with a public entity, energy generators would be protected with minimum remuneration while it should be ensured that they operate and participate efficiently in the electricity markets and react to market circumstances. In high price periods, they would have to pay back excess revenues, which can then be distributed to final customers (while avoiding distortions to competition and trade in the internal market), be invested to reduce electricity costs for final customers or used to develop distribution grids.
Two-way contracts for difference can apply to investments in new power-generating facilities based on wind energy, solar energy, geothermal energy, hydropower without reservoir and nuclear energy.
Better prepared against future crises
The new rules give the Council the power to declare a crisis, on the basis of a Commission proposal, in the event of very high prices in wholesale electricity markets, or if there is a sharp increase in electricity retail prices.
Action to be taken by member states in case of a declared electricity crisis includes already existing measures under the current EU rules, such as further reduction of electricity prices for vulnerable and disadvantaged customers. Member states should also prevent any undue distortion of the internal electricity market, including by ensuring level-playing field for suppliers during the crisis period.
Protecting and empowering consumers
Member states will reinforce their measures to protect vulnerable and energy poor customers, including banning disconnections. The reform also further encourages energy sharing schemes, in complement to the existing provisions on renewable energy communities and citizen energy communities.
Ensuring security of supply
On the way to a carbon-free system, the so-called capacity mechanisms – measures introduced by member states to address capacity adequacy concerns – will become a more structural element of the electricity market and will no longer be temporary measures. This will improve security of supply and will enhance flexibility, as the share of renewables will gradually increase.
Next steps
The electricity market regulation formally adopted today amends the current electricity regulation, together with targeted changes in the ACER regulation. It will now be signed and published in the Official Journal of the EU. It will enter into force on the twentieth day following publication and will then become directly applicable in all member states.
For reasons of legal certainty and clarity, the provisions on amending the current electricity directive and the renewables directive have been split from the proposed regulation and have become a self-standing directive, also formally adopted today. EU member states will have up to six months to adapt their national legislation to the provisions of the electricity market directive.
Background
The Commission presented the proposals on the reform of the EU’s electricity market design on 14 March 2023, as a response to the high and volatile energy prices in 2022. The reform package included the electricity market design regulation together with a proposal for a regulation to protect against market manipulation in the wholesale energy market, which was formally adopted by the Council on 18 March 2024.
Negotiations on the electricity market reform between the two co-legislators, the Council of the European Union and the European Parliament, started on 19 October 2024 and were concluded within less than two months, on 13 December 2023, when a provisional agreement was reached.
- Electricity market regulation
- Electricity market directive
- Meeting voting results
- Reform of electricity market design: Council and Parliament reach deal (press release, 14 December 2023)
- Wholesale energy markets: Council adopts law to protect against market manipulation (press release, 18 March 2024)
- Electricity market reform (background information)
- EU response to Ukraine invasion (background information)
- The energy leap (feature story)
- Energy prices and security of supply (timeline)
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