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HomeEU affairsCouncil reaches agreement on proposal to amend the EU’s electricity market design

Council reaches agreement on proposal to amend the EU’s electricity market design

The EU Council reached an agreement (general approach) on a proposal to amend the EU’s electricity market design (EMD). This will allow the Council presidency to start negotiations with the European Parliament to reach a final agreement.

“I am proud to say that today we have taken a strategic step forward for the future of the EU,” said Teresa Ribera Rodríguez, acting Spanish third vice-president of the government and minister for the ecological transition and the demographic challenge. “We have achieved an agreement that would have been unimaginable only a couple of years ago. Thanks to this agreement, consumers across the EU will be able to benefit from much more stable prices of energy, less dependency on the price of fossil fuels and better protection from future crises. We will also accelerate the deployment of renewables, a cheaper and cleaner source of energy for our citizens.”

The reform aims to make electricity prices less dependent on volatile fossil fuel prices, shield consumers from price spikes, accelerate the deployment of renewable energies and improve consumer protection.

The proposal is part of a wider reform of the EU’s electricity market design which also includes a regulation focused on improving the Union’s protection against market manipulation through better monitoring and transparency (REMIT). A general approach on REMIT was agreed upon earlier in June.

The reform aims to steady long-term electricity markets by boosting the market for power purchase agreements (PPAs) generalising two-way contracts for difference (CfDs) and improving the liquidity of the forward market.

The Council agreed that Member States would promote the uptake of power purchase agreements, by removing unjustified barriers and disproportionate or discriminatory procedures or charges. Measures may include among other things, state-backed guarantee schemes at market prices, private guarantees, or facilities pooling demand for PPAs.

The Council agreed that two-way contracts for difference (long-term contracts concluded by public entities to support investments, which top up the market price when it is low and ask the generator to pay back an amount when the market price is higher than a certain limit, in order to prevent excessive windfall profits) would be the mandatory model used when public funding is involved in long term contracts, with some exceptions.

Two-way contracts for difference would apply to investments in new power-generating facilities based on wind energy, solar energy, geothermal energy, hydropower without reservoir and nuclear energy. This would provide predictability and certainty.

The rules for two-way CfDs would only apply after a transition period of three years (five years for offshore hybrid asset projects connected to two or more bidding zones) after the entry into force of the regulation, in order to maintain legal certainty for ongoing projects.

The Council added flexibility as to how revenues generated by the state through two-way CfDs would be redistributed. Revenues would be redistributed to final customers and they may also be used to finance the costs of the direct price support schemes or investments to reduce electricity costs for final customers.

The Council also introduced a derogation from existing requirements regarding CO2 emission limits for generators to receive support from capacity mechanisms, under strict conditions and until 31 December 2028.

In addition, the Council introduced clarifications to the provisions on customer protection. It agreed to strengthen consumer protection by establishing a free choice of a supplier and the possibility of accessing dynamic electricity prices and fixed-term and fixed-price contracts unless suppliers do not offer fixed contracts and provided that this does not reduce the overall availability of fixed contracts.

It was also agreed that all customers would have the right to energy-sharing schemes and that all consumer rights would be extended to final customers involved in energy-sharing schemes.

Under the current rules, Member States can apply regulated prices for energy poor and vulnerable households and as a transitional measure for households and micro-enterprises whether or not there is an electricity price crisis. The reform adds a temporary option to apply regulated prices, even below cost, to small and medium-sized enterprises (SMEs) in times of crisis.

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