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EU power market design: where do we go from here?

As part of Europe’s response to the Russian invasion of Ukraine, earlier this year, EU heads unanimously agreed on the need to reform the EU electricity market. At an EU Energy Council meeting on 19 June, the bloc’s energy chiefs reached a partial agreement with the green light for wholesale energy market integrity and transparency (REMIT) regulations.

However, an agreement on capacity mechanisms beyond 2025 remains without consensus, which carries the risk of “inadvertently” facilitating an increase in coal subsidies, said Pan-European climate think tanks (CAN Europe, E3G and Beyond Fossil Fuels) in a recent statement.

In March, the European Commission presented a proposal for the electricity market reform, currently debated by EU governments and the European Parliament. The proposal maintained the status quo on capacity mechanisms so that these cannot be used to subsidise uneconomic power plants to keep them online.

The rules that came into effect in 2019 stipulate that such payments should not go to coal plants after 2025 under the so-called 550g CO2 rule. This rule excluded payments to any power plants that emit more than 550g of CO2 per kWh. 

Following a push from the Polish government and a few other countries to prolong the possibility of using coal subsidies in the negotiating position of EU energy ministers, the Swedish presidency included this proposal in their draft compromise text, which was presented to EU ambassadors (COREPER) on Friday, 16 June. This push was matched by proposed amendments by Polish MEPs to include similar provisions in the European Parliament’s negotiating position.

However, energy ministers from Germany, Luxembourg, Austria, the Netherlands, Spain, Portugal, Belgium, Denmark, Ireland and Greece blocked this proposal during the recent Energy Council. Conversely, Poland’s efforts were backed by Romania, Cyprus and Malta. France and Finland also backed the deal to grant extensions on coal power plant subsidies.

On Friday, the Swedish presidency held informal bilateral talks with EU energy ministries, seeking to reach a new proposed compromise text. As reported by Reuters, no deal was reached last Friday with continued disagreements over state subsidies.

“Disagreements over coal subsidies (desperately wanted by Poland) and nuclear subsidies (idem by France) stopped EU Energy Ministers from agreeing on new Power Market Rules. Coal subsidy fight result of an unforced error by Swedish Presidency, one that Spain will now need to correct,” said Pieter de Pous, E3G’s Acting Head of Berlin Office via Twitter.

The task to reach an agreement has now been passed on to Spain, as it took over the Presidency of the EU Council on Saturday (1 July). As outlined among its priorities, “the Spanish Presidency will do its utmost to foster this transition. We will promote a reform of the electricity market aimed at accelerating the deployment of renewable energies, the reduction of electricity prices and the improvement of the system’s stability.”

On 19 July, European Parliament’s Energy and Industry Committee (ITRE) will vote on their negotiating position. If the Council is ready with its position by then, it is possible that the three-way negotiations between the Commission, the Parliament and the EU governments begin immediately with a view to securing a final deal by the end of 2023. 

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