Brussels, 21 May 2024
The EU Commission welcomes today’s adoption of important electricity and gas market reforms and the new regulatory framework to boost the development of hydrogen and other decarbonised gases. These reforms highlight Europe’s determination to pursue the clean energy transition while enhancing security of supply and consumer protection and building on the lessons learnt from the energy crisis.
Future-proof energy markets will stimulate investments inclean energyand facilitate lower and more stable prices which are key to make European industry more competitive on the global stage. With the adoption of the revised electricity market design and the decarbonised gas and hydrogen package, the EU has further tools to reach its energy and climate targets under the European Green Deal. The updated gas market framework gives Member States the possibility to stop or limit imports of both piped gas and LNG from Russia and Belarus, in line with the REPowerEU objectives.
Better protected and more competitive power consumers
The electricity market reform gives consumers a wider choice of contractsandclearer information before signing contracts. They will have the option to lock in secure, long-term prices as well as to have dynamic pricing contracts to take advantage of price variability to use electricity when it is cheaper. Member States will have to establish suppliers of last resort so that no consumer ends up without electricity. Vulnerable consumers and the energy poor will be protected from disconnection and Member States will be able to extend regulated retail prices to households and SMEs in case of a crisis. On top of consumer protection, energy sharing is also strengthened. As an example, tenants will be able to share surplus rooftop solar power with a neighbour.
The reform will also help European businesses stay competitive by giving them access to more predictable energy costs. It creates the conditions for both suppliers and consumers to benefit from the expanded use of longer-term market instruments such as Power Purchase Agreements, two-way Contracts for Difference and forward contracts.This will provide investment certainty to both power producers and industrial consumers.Overall, both households and companies will be able to benefit from the lower costs of renewables, whose integration and availability will also be boosted by the new provisions on grid congestion, trading deadlines, demand response and storage, as well as EU-level auctions.
Finally, to ensure EU consumers will benefit from competitive markets with transparent price-setting, the Agency for the Cooperation of Energy Regulators (ACER) and national regulators will have enhanced ability to monitor energy market integrity and transparency.
A cleaner and more secure European gas market
The new framework for the gas market will facilitate theuptake of renewable and low-carbon gases while ensuring security and affordability of energy for all European citizens. The reform of the gas market ensures that decarbonised gases and hydrogen can flow across Europe. In particular, the reforms will lead to the creation of a market for hydrogen, which will be key to curb emissions in hard-to-abate sectors such as heavy industries and transport. The Commission will also pilot a five-year project to bring together demand and supply of hydrogen to enhance market development and transparency under the European Hydrogen Bank.
Consumers will be better protected against supply and price risks. They will be empowered to take an active role in the market and to select cleaner supplies and contracts. Practically speaking, they will be able to switch suppliers more easily, use effective price comparison tools, get accurate, fair and transparent billing information, and have better access to data and new smart technologies.
Next steps
Following today’s adoption, the revised legislation will now be published in the Official Journal of the Union and its provisions will enter into force according to specific timelines.
Background
The Commission put forward the decarbonised gases and hydrogen package in December 2021 as part of the European Green Deal. It was provisionally agreed by the co-legislators in December 2023. The proposals followed the strategic visions set out in the EU Energy System Integration Strategy and EU Hydrogen Strategy in 2020. The revision of the electricity market design was proposed in March 2023 to respond to the call of EU Leaders to come forward with a reform to secure European energy sovereignty and achieve climate neutrality. It was presented as part of the Green Deal Industrial Plan and provisionally agreed by the co-legislators in December 2023.
More information
Questions and Answers on the reform of the Electricity Market Design
Questions and Answers on the Decarbonised Gases and Hydrogen package
Quote(s)
Stable prices and clean energy are key for our citizens to live a better life and for our businesses to prosper in Europe while competing fairly on the global market. Under this updated framework, European households and businesses will benefit from more security, affordability and transparency on the European energy markets. This is good for the clean energy transition and this is good for the economy.
Maroš Šefčovič, Executive Vice-President for European Green Deal, Interinstitutional Relations and Foresight
The energy crisis brought about major changes to the EU’s energy landscape. Once largely dependent on Russian supplies, Europe is now moving on to the electricity and gas markets of the future, where there is no space for Russian gas and where renewables, clean gases and hydrogen have a central role. I particularly encourage all Member States to make use of the new REPowerEU provisions to end Putin’s access to our energy markets as soon as possible.
Kadri Simson, EU Commissioner for Energy
Source – EU Commission
Questions and Answers on the reform of the Electricity Market Design
Brussels, 21 May 2024
How will the revised legislation impact prices for households and industry?
The reform of the electricity market design reduces the risk of high and volatile prices faced by the European electricity sector impacting households, companies and industry by introducing measures that promote energy sharing agreements, power purchase agreements and two-way contracts for difference. These are all key tools to enhance the stability and predictability of energy costs for both households and businesses.
The reform also introduces prudential obligations on electricity suppliers to ensure the availability of fixed-price and fixed-term contracts for consumers, and includes new measures to minimise the risk of bankruptcy of suppliers and enable consumers to opt for multiple electricity supply offers. Consumers will also be able to benefit from low-cost renewables by sharing the electricity they produce themselves.
As a result of these measures, electricity prices are expected to stay at a more stable level and to be more independent from volatile fossil fuel import costs. Overall, this will have a positive impact on energy bills of European households and businesses.
Will contracts for difference and power purchase agreements be mandatory?
The reform of the electricity market design introduces measures that promote the use of power purchase agreements (PPAs) as long-term tools to guarantee price stability to both suppliers and consumers. However, it does not oblige market participants to enter into such agreements. Member States will be obliged to ensure the availability of instruments to reduce financial risks linked to PPAs, thereby expanding the access to these contracts. For this purpose, Member have the possibility to set up market-based State guarantees. These guarantees scheme cannot support fossil generation but can support any carbon-free technology. In addition, Member States will have the possibility to limit these State guarantee schemes to support renewable generation only, in line the Member State’s decarbonisation policies.
With regard to contracts for difference, there is a new obligation for Member States to use two-way contracts for difference or other equivalent schemes with the same effects when they grant public support in the form of direct price support schemes for investments in new renewables and low carbon, non-fossil fuel power plants, notably powered by wind energy, solar energy, geothermal energy, hydropower without reservoir and nuclear energy. Public support for extension of existing capacity could also be subject to two-way contracts-for-difference. Similarly, the participation of market participants in two-way contracts-for-difference or other equivalent schemes with the same effects is voluntary.
How will the new framework help to integrate renewables?
The reform will help to integrate renewables in several ways. Overall, it will facilitate the participation of renewables, demand response, storage and flexibility in the wholesale electricity markets by increasing their liquidity and the conditions for trading in these markets.
It will also help connecting more renewables and storage solutions in congested parts of the grid and those areas awaiting network reinforcements through non-firm, flexible connection agreements which could, for example, take into account energy storage or limit the times in which a generation power plant can inject electricity to the grid, enabling its partial connection. Energy sharing organisers, such as aggregators or energy communities, can help alleviate grid congestion by shifting energy demand to off-peak hours.
The reform also features new provisions to integrate large new offshore renewable energy projects connected to more than one market, by compensating the risks that these projects face in relating to access to markets.
How will the legislation improve Europe’s energy security?
In line with European Green Deal and REPowerEU goals, the reform will play an important role in phasing out Europe’s dependence on fossil fuels for electricity generation. This will be achieved partly by improving the markets for long-term contracts, such as power purchase agreements (PPAs) and two-way contracts for difference, and by facilitating the integration of renewables across the power system.
PPAs and two-way contracts for difference not only provide consumers with stable prices. They also provide renewable energy suppliers with reliable revenues. This lowers their financial risk and greatly reduces their cost of capital, acting as a push factor for investment. This creates a virtuous circle where stable revenues effectively lower costs and boost demand for renewable energy.
How and when can the EU declare an electricity prices crisis and what would it entail?
The Commission continuously monitors electricity prices in wholesale and retail markets. Under the revised electricity market design, the Commission can submit a proposal to the Council to declare a regional or EU-wide electricity price crisis, if the circumstances justify action. Notably, two conditions need to co-exist:
- Very high average prices in wholesale electricity markets of at least two and a half times the average price over the previous 5 years, and at least 180EUR/MWh, which is expected to continue for at least 6 months, excluding the average price during the previous 5 years.
- Sharp increase in electricity retail prices in the range of 70%, which is expected to continue for at least 3 months.
When the Council adopts a decision declaring such a crisis, Member States can apply temporary targeted public interventions in price setting for the electricity supply to small and medium-sized enterprises (SMEs) (for up to 70% of their consumption) and to households (up to 80% of median household consumption and up to 100% for vulnerable and energy poor households).
How will the revised electricity market design help boost European industry’s competitiveness?
The reform would promote more stable prices for energy use and make lower-cost renewable energy sources more available.
To improve the competitiveness of EU industry and to reduce its exposure to volatile prices in particular the revised electricity market design includes measures to deploy more stable long-term contracts such as Power Purchase Agreements (PPAs). Through PPAs, companies establish their own direct supplies of energy and can thereby profit from more stable prices of renewable and non-fossil power production. To address the current barriers to PPAs, such as the credit risks of buyers, the reform obliges Member States to ensure the availability of market-based financial instruments.
Direct price support schemes introduced by Member States for new investments in infra-marginal and must-run renewable and non-fossil electricity generation, will have to be in the form of two-way contracts for difference or equivalent schemes with the same effects. Member States are furthermore obliged to channel excess revenues to final customers. This serves to provide power producers with revenue stability while shielding industry from price volatility.
In addition, the reform will boost market liquidity for long-term contracts that lock in future prices, so-called “forward contracts.” This will enable more suppliers and consumers, including the EU’s industry, to protect themselves against excessively volatile prices over longer periods of time.
How will consumers be empowered to be active players in the market?
One way to increase the resilience of consumers to the effects of high and volatile wholesale market prices is to make them proactive players in the energy market. The new Electricity Market Design empowers consumers to do so, including those who otherwise do not have the option of becoming an active customer due to financial or spatial constraints, notably vulnerable customers and those affected by energy poverty.
Through energy sharing, consumers can self-consume off-site generated or stored electricity. This not only provides consumers with direct access to low-cost renewables, but it also unlocks additional incentives for active customers to invest in the deployment of renewables and engage in demand response.
Consumers can share self- or collectively-generated electricity with friends, families, neighbours, communities, vulnerable consumers or those affected by energy poverty. For example, low-income families living in social housing could benefit from renewable energy from the solar panels on public buildings.
Another important change is the possibility for consumers to conclude more than one electricity supply contract or energy sharing agreement, under the same connection point for their premises. In other words, they will be able to conclude a fixed-price contract to have predictable costs for their main household needs and, in parallel, a dynamic price contract specifically to power their heat pump or charge their electric car at those times of the day when electricity is cheapest, that is to say when renewable energy is most plentiful. Metering arrangements are left to Member States to decide, while smart metering systems could be used where this is technically feasible.
How does the revised legislation improve market integrity and transparency?
As part of the electricity market reform, the revision of the Regulation on Wholesale Energy Market Integrity and Transparency (‘REMIT’) strengthens the framework for preventing and protecting consumers and business against market abuse in the European electricity and gas markets.
More specifically, the revised REMIT introduces a new enforcement regime with a stronger role for the European Union Agency for the Cooperation of Energy Regulators (ACER) in cross-border investigations. As a result, it would be possible to more effectively pursue cross-border cases that strengthen protection against any market abuse and increase the integrity and oversight of the wholesale energy market.
In addition, the revised REMIT tightens the supervision of market participants that are subject to reporting obligations such as Registered Reporting Mechanisms (RRMs) and Inside Information Platforms (IIPs), and strengthens the enforcement systems at national and EU level, including towards external market players, namely market participants that are not resident or established in the EU. Such strengthened enforcement and supervision of market participants aims at protecting energy wholesale markets from market manipulation and abusive actions.
Source – EU Commission
Questions and Answers on the Decarbonised Gases and Hydrogen package
How will the revised legislation enable cross-border trade of renewable and low-carbon gases and facilitate their access into the market?
The revised gas market regulation and directive will substantially improve market and infrastructure access for renewable and low-carbon gases and hydrogen, contributing to decreasing emissions across the energy sector. In particular, it will ensure their connection and access to the existing gas grid and allow discounts to cross-border and injection tariffs for these cleaner gases. In practice, this means Member States can make it cheaper to flow renewable and low-carbon gases through the system, as national regulatory authorities can decide to apply discounts to various network tariffs. The regulatory framework makes sure that renewable and low-carbon gases have the required market access and can easily be traded.
To avoid market segmentation, the new rules introduce common standards for the quality of gas that can flow between Member States. Transmission operators are obliged to accept gas with a hydrogen content of up to 2%, with voluntary agreements for higher blends also possible. A dispute settlement mechanism is introduced for cases where disagreements arise between neighbouring transmission system operators about the quality of gas that they are willing to accept. Still, the quality of the gas is to be closely monitored. These norms will ensure that the divergence in the quality of gas does not become an obstacle to cross-border trade. This is in line with the EU Hydrogen Strategy of July 2020 to reflect the priority to use hydrogen in its purest form.
The revised framework also sets out a process to agree on the practical aspects of implementation, that is to say securing financing and finding technical solutions, with clear roles set out for businesses and regulators.
Will this package phase out fossil gas from the EU market?
Whilst recognising the transitional role of fossil gas, the package creates the framework for its gradual phase-out by enabling the integration of renewable and low-carbon gases into the energy system. The uptake of these cleaner gases will be key for the EU to achieve its 2030 climate objectives and climate neutrality by 2050.
Crucially, the reform will avoid lock-in effects and stranded assets, by introducing a time limit for long-term gas contracts. More specifically, long-term contracts for unabated fossil gas should not last beyond 2049. This will avoid locking Europe into fossil gas imports while incentivising the use of renewable and low-carbon gases, which will be in large part domestically produced and thus reinforce our energy security.
How will the revised gas legislation impact prices and protect European consumers?
The revised gas legislation strengthens consumer rights and protection, mirroring the benefits that already exist in the electricity market. Consumers will receive clearer information on contracts and bills, and switching suppliers will be faster and easier. They will also have better access to tools helping them compare prices and get fair, accurate and transparent billing so they can choose the best deal for them. With clearer information and enhanced protection, consumers, and particularly the most vulnerable and those affected by energy poverty, will be able to switch more easily to more sustainable heating solutions.
The revised legislation also gives consumers better access to data and new smart technologies to monitor consumption more easily. In addition, in case of a natural gas price crisis, Member States will be able to introduce effective measures to protect consumers and ensure they have access to affordable energy and essential social services, including through interventions on price settings to shield consumers from excessively high prices.
How will the package support the development of hydrogen infrastructure?
The new hydrogen framework introduced by this gas market reform ensures that hydrogen will be cost-effectively brought from areas where it can be easily produced to the industrial customers that need it. It streamlines network planning procedures while fostering cross-border coordination.
At national level, all hydrogen transmission network operators are to submit a Ten-year Network Development Plan, and to update it every two years, after consulting stakeholders. Each Member State will have a single network development plan for hydrogen or, as an option, a joint plan for natural gas and hydrogen, where the specific needs of the hydrogen sector are identified and addressed separately. Stronger coordination of infrastructure planning among the electricity, hydrogen and gas sectors is also encouraged. As regard the development of the distribution network, the legislation ensures that operators submit a network development plan every four years.
In addition to the national network development plans, a separate EU-wide Ten-Year Network Development Plan for hydrogen will provide the necessary transparency on infrastructure needs. Its development will be handled by a new, independent EU association gathering hydrogen transmission network operators called ENNOH (European Network for Network Operators of Hydrogen). This will help promoting dedicated hydrogen infrastructure and aligning it better with national plans. To ensure energy system integration and contribute to cost-efficient infrastructure development, ENNOH, the ENTSO for Electricity and the ENTSO for Gas will cooperate to deliver EU-level integrated network planning, with joint scenarios across the electricity, hydrogen and gas sectors.
The reform also introduces a market design for hydrogen in Europe with a gradual phase-in of rules in two phases, before and after 2033. In the ramp-up phase only a simplified framework will apply, while already providing clear visibility about the future rules for a developed hydrogen market. These provisions cover notably access to hydrogen infrastructures, separation of hydrogen production and transport activities (so-called “unbundling”) and tariff setting.
How will the certification system for low-carbon hydrogen and synthetic fuels work in practice?
The reform introduces a certification system for low-carbon gases, including hydrogen, which complements the certification of renewable gases and hydrogen under the revised Renewable Energy Directive. It will ensure a level playing field and consistency in assessing the full greenhouse gas emissions footprint of different gases and allow Member States and consumers to effectively compare and consider them in their energy mix. The certification rules will apply both to imports and to domestic production in order to ensure a level-playing field and avoid carbon leakage. The system reflects the one used for the certification of biofuels.
The Commission assesses and recognises so-called Voluntary Schemes for the certification of low-carbon fuels. Producers of low-carbon fuels can hence rely on a well-established system of certification by third parties, the Voluntary Schemes, which are international companies with over a decade of experience in certifying biofuels, biomass and other products worldwide. Member States are required to accept evidence from the Voluntary Schemes recognised by the Commission.
Under the revised legislation, low-carbon hydrogen is defined as a fuel generating 70% greenhouse gas emissions savings compared to fossil. The exact methodology to assess emissions for low-carbon hydrogen will be developed though a Delegated Act to be presented by the end of 2024.
How will the legislation improve Europe’s energy security?
Building on the lessons from the energy crisis, the reform reinforces the existing solidarity framework to secure supplies for all Member States. In case of an emergency, when a severe gas shortage would occur, Member States are required to provide solidarity gas to a Member State in need. The existing rules for this solidarity mechanism have been operationalised, in particular when two Member States have not signed a bilateral agreement to agree on technical, legal and financial details. In case no bilateral agreements are signed, default solidarity rules will apply in cases of emergency, automatically protecting vulnerable customers, including between Member States that do not have a direct connection.
Crisis management procedures have also been strengthened by adding safeguards for the cross-border flows of gas during an emergency and by reducing non-essential consumption.
New rules are also introduced to cover emerging cybersecurity risks. In particular, the Commission is empowered to adopt specific rules for the cybersecurity of cross-border gas flows. Member States will have to take such risks into account when preparing their preventive action plans and emergency plans.
Will the revised legislation support the phaseout of Russian gas in the EU?
Under the REPowerEU Plan, the EU is committed to phasing out all fossil fuel imports from Russia as soon as possible.
This legislation empowers Member States with a legal tool to limit capacity bookings for Russian and Belarusian gas when this impacts their essential security interests. Access to Russian and Belarusian gas can be restricted at their borders and at the LNG terminals, based on clearly defined criteria and in consultation with the other Member States concerned. Member States are required to consult the Commission before making use of this mechanism and to take utmost account of its opinion to ensure European coordination.
In addition, natural gas or LNG supplies originating in Russia, or Belarus, will be automatically excluded from the demand aggregation and joint purchasing platform until 31 December 2025. After that, the Commission may impose additional restrictions for up to one year in case it is necessary to protect the essential security interests or security of energy supply in Member States. This will help to ensure supplies are diversified and Russian natural gas phased out in Member States.
How will the revised legislation facilitate demand aggregation and joint purchasing of gas and hydrogen?
To further strengthen security of supply, building on the experience of the EU Energy Platform, the reform establishes a permanent mechanism for demand aggregation and joint purchasing of gas, for voluntary use.
In addition, the Commission is empowered to develop a 5-year pilot mechanism to support the market development of hydrogen to ensure market transparency, decarbonisation and security of supply.
This mechanism will help hydrogen off-takers and suppliers to connect, and will improve hydrogen market transparency. More specifically, under the European Hydrogen Bank, the mechanism could: collect and process market data; assess demand from off-takers; collect offers from suppliers; and provide access to this knowledge to the market participants. The Commission is currently designing and preparing the pilot mechanism with a view to launching it in 2025.
Source – EU Commission