Electricity customers in the EU should be better protected from excessive prices in the future. EU energy ministers achieved a breakthrough in reforming the European electricity market at their meeting in Luxembourg on Tuesday evening. The aim is to decouple electricity prices from the prices of fossil fuels and to accelerate the expansion of renewable energies. During the energy crisis last year, high gas prices in particular led to excessive prices on Europe’s electricity exchanges. Until recently, a dispute between France and Germany had prevented an agreement on the matter.
“Europe has demonstrated its ability to act today,” said Federal Economics Minister Robert Habeck (Greens) after the agreement. This will improve “consumers’ and industry’s access to affordable electricity prices throughout Europe.”
The reform is an ambitious economic policy project. In the energy sector, the European internal market is not complete, electricity does not flow seamlessly across the EU’s internal borders and the energy mix of the member states is very different. The Commission therefore decided to standardize the rules and create a mechanism to keep prices in check.
The core of the regulation includes so-called bilateral contracts for difference, or CFDs for short. Authorities and electricity producers agree on a price corridor for a certain period of time, for example 20 years. If the price on the market is lower than the lower limit, the state makes up the difference. If the price exceeds the upper limit, the power plant operators pay to the state, which can then redistribute the money. Excess profits would be automatically skimmed off. This is intended to provide the EU states with additional funds for the expansion of renewable energies.
The concern: France could exploit its old nuclear power plants
The compromise formulated by the Spanish Council Presidency now stipulates that CFDs should become the rule for long-term contracts with public financing – but unconditionally only for investments in new wind power plants, photovoltaic systems, geothermal energy, hydropower without a reservoir and nuclear energy.
A number of countries, including Germany, were until recently concerned that France could impose an artificially low price on its state-managed nuclear power plants, skim off billions in profits and subsidize industry and consumers across the board with a kind of permanent electricity price brake. It is feared that this would have undermined the strict EU requirements for state subsidies and distorted competition between member states. It was controversial whether the CFDs could be used indefinitely to extend the operating times of existing power plants, even though this only requires small investments compared to new construction. That was deleted. The Council compromise now contains clauses that require fair competition to be maintained when supporting existing investments with CFDs. The commission should monitor this.
Before the regulation becomes law, the Council of Member States and the EU Parliament must now agree on a common position.