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EU Council and Parliament reach deal on reform of the electricity market design

The European Council and the European Parliament have reached a provisional agreement to reform the EU’s electricity market design (EMD), which 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.

“This deal is great news, as it will help us reduce even more the EU’s dependence on Russian gas and boost fossil-free energy to cut greenhouse gas emissions,” commented Teresa Ribera, Spanish Third Vice-President of the Government and Minister for the Ecological Transition and the Demographic Challenge. “Thanks to this agreement, we will be able to stabilise long-term markets, speed up the deployment of renewable and fossil-free energy sources, offer more affordable electricity to the EU’s citizens and enhance industrial competitiveness.”

The proposal is part of a wider reform of the EU’s electricity market design, which also includes a regulation focused on improving the EU’s protection against market manipulation through better monitoring and transparency (REMIT). A provisional agreement on REMIT was reached earlier in November.

The Council and the Parliament agreed to give member states the possibility to exclusively support the purchase of new renewable generation, where conditions allow and in line with member states’ decarbonisation plans. On voluntary standardised contracts, both institutions agreed to maintain their voluntary nature for member states. The provisional agreement also provides an assessment from the European Union Agency for the Cooperation of Energy Regulators (ACER) on the market for PPAs based on the information from the database provided in the REMIT regulation.

Both co-legislators also agreed to give the Council the power to declare a crisis, on the basis of a Commission proposal. In addition, the provisional agreement provides the criteria for declaring a crisis, related to the average wholesale electricity price or a sharp increase in electricity retail prices. On the measures to be adopted by member states once a crisis is declared, both institutions agreed to take into account the existing possibility of further reducing electricity prices for vulnerable and disadvantaged customers, based on the current electricity directive.

The Council and the Parliament agreed to reinforce the measures to be put in place by member states to protect vulnerable and energy-poor customers, including the addition of the definition of energy poverty accompanied by a reference to the new energy efficiency directive taking appropriate measures.

Furthermore, both co-legislators agreed to make capacity mechanisms a more structural element of the electricity market. They agreed to introduce a potential and exceptional derogation from the application of the CO2 emission limit for already authorised capacity mechanisms, where duly justified.

Finally, both co-legislators agreed to make two-way contracts for difference or equivalent schemes with the same effects as the model used when public funding in the form of direct price support schemes are involved in long-term contracts. 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.

The European Commission has welcomed the provisional agreement reached as it will also make the European industry cleaner and more competitive thanks to better access to affordable renewable, non-fossil energy.

“The reform of the electricity market will facilitate the much-needed integration of renewables into our energy system,” said Maroš Šefčovič, Executive Vice-President for European Green Deal, Interinstitutional Relations and Foresight. “It will allow our industries to benefit from more stable and predictable energy prices, which is essential to remain competitive on the global stage. It will help our citizens, especially those most vulnerable, to cope with energy prices. In a nutshell, today’s deal is good for our citizens, for our industries and for our planet.”

“This agreement is great news for our consumers,” added Kadri Simson, Commissioner for Energy. “With renewables playing an increasing part in the EU’s energy mix, it is about time that our citizens and businesses start reaping the benefits of the clean energy transition on their bills. A future-proof electricity market design is a key asset in triggering investments in clean power production and flexibility, supporting our efforts to reach a climate-neutral energy system while ensuring prosperity.”

This provisional agreement now requires formal adoption by both the European Parliament and the Council. Once this process is completed, the new legislation will be published in the Official Journal of the Union and enter into force.

Criticisms on the Capacity Remuneration Mechanisms

Brussels-based association SolarPower Europe also welcomed the agreement, considering it as a clear path forward for long-term investments into renewables.

“We are relieved to see an end to the current implementation of market caps, which has been fragmenting the EU market and harming renewable investments,” said Naomi Chevillard, Head of Regulatory Affairs at SolarPower Europe. “Negotiators have given the solar sector much-needed legal certainty by setting clear rules at the level for declaring an emergency situation. The new market design will empower Europeans with some real tools for decarbonising and fighting future energy crises, thanks to solar’s low cost and versatility.”

However, Ms Chevillard added that the deal found on capacity remuneration mechanisms is prolonging Europe’s dependency on coal. “Member States should be betting on, and investing in, clean flexibility of the future – like batteries or demand-side response – rather than the outdated fossil baseload of the past,” she mentioned.

The deal reached on capacity mechanisms was also criticised by the European Association for Storage of Energy (EASE), considering this approach to hinder grid decarbonisation and further dependency on gas imports.

“Capacity mechanisms should promote green flexibility,” said EASE Head of Policy Jacopo Tosoni. “The decision to keep subsidising fossil fuels power plants through capacity mechanisms, albeit under strict conditions, is a step in the wrong direction.”

However, overall, also EASE considered the agreement reached as an important step forward, addressing the concerns of citizens and Industry.

“This new legislation focuses extensively on flexibility – and rightfully so: ensuring sufficient energy storage is deployed is crucial to prevent energy price spikes and gas import dependency,” stated Mr Tosoni. “This reform will have a big impact on the energy storage sector.”

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