EU wants to better protect consumers from high electricity prices

In the future, consumers in Europe will no longer experience sharply fluctuating electricity prices like in 2022. The EU Parliament and negotiators from the EU states have agreed on a reform of the electricity market.

Consumers in the EU should be better protected from escalating and fluctuating electricity prices in the future. Due to extremely high electricity prices last year, calls for a reform of the European electricity market had become loud. After months of negotiations, negotiators from EU countries and the European Parliament in Strasbourg have now agreed on a reform of the European electricity market.

In addition to more stable prices, the innovations are also intended to promote the expansion of renewable energies. The compromise must be formally confirmed by the EU Parliament and the states before the reform can come into force.

The reason for the high prices was, among other things, exploding gas prices due to the Russian war of aggression on Ukraine. It was also noticeable that around half of France’s nuclear power plants temporarily failed.

Reform proposal provides for long-term contracts with electricity producers

The basis for the agreement was a legislative proposal from the EU Commission from the spring. This provides for private individuals to be given the right to fixed-price contracts as well as contracts with dynamic prices.

A core element of the reform proposals, according to the will of the member states, are new long-term contracts between governments and electricity producers, so-called Contracts for Difference (CfDs). With these contracts for differences, states guarantee electricity producers a minimum price for electricity when they make new investments. According to the Commission’s wishes, this should apply to investments in renewable energies such as wind and solar power as well as nuclear power. If the market price falls below an agreed price, the state steps in and makes up the difference. If the price is higher, the surplus goes to the state.

This is intended to create incentives for the domestic production of clean electricity.

Incentives for clean electricity production

In principle, the electricity market in the EU will continue to function according to the so-called merit order principle. This refers to the order of deployment of the power plants offered on the electricity exchange. Power plants that can produce electricity cheaply are used first to meet demand. These are, for example, wind turbines. In the end, the price depends on the most expensive power plant that was switched on last – often gas power plants.

Criticism of agreement by the Green group in the EU Parliament

The Green group in the European Parliament cannot support the agreement reached, said German MP Michael Bloss. “One day after the historic agreement at the climate conference in Dubai, the EU decides on new fossil subsidies for the dirtiest coal-fired power plants. This makes the EU completely untrustworthy.” With this agreement, the EU could immediately give up its distinction as a climate pioneer.