Vulcan Insight

Commission seeks revision of the EU’s Energy Market Design

17 March 2023

On 14 March, the Commission proposed to reform the EU’s electricity market design as part of the Green Deal Industrial Plan. Throughout the energy crisis, the EU’s electricity market design has shown various shortcomings, including unsustainably high electricity bills for consumers and the EU’s inability to sufficiently support industry. The proposed reform focuses on aspects requiring urgent adjustments to make the market more resilient and to reduce the impact of gas prices on electricity bills. The EU’s Energy Commissioner Kadri Simson marked that the proposal will not alter the fundamentals of the existing electricity market. 

In accordance with the European Green Deal and the REPowerEU Plan, the proposal contributes to the development of a renewables-based electricity market, that is equally sustainable and independent. To reach the EU’s energy and climate targets, the deployment of renewables will need to triple by 2030, as stated by the Commission. In light of this, the two focus points of the proposal are consumer protectionand enhancing energy costs’ predictability and stability to foster industrial competitiveness.

Concerning consumers, they would be given a wide choice of electricity contracts and clearer information. Providers would be required to inform consumers about the benefits and risks of different contracts. Moreover, suppliers are to manage their price risks to ensure stable prices. Several mechanisms are included to protect consumers at risk of being cut off from the system. The proposal also revises the rules on the sharing of renewable energy sources, so that consumers can, for instance, share surplus rooftop solar power with a neighbour. Such a framework to share electricity is provided by the EU for the first time.

On the industry side, the Commission wants to protect companies from high energy prices. One way to do this is by extending the use of “peak shaving” to encourage savings when demand is highest. The practice of peak shaving reduces the demand for electricity purchases during peak times. To provide for further stability, it is proposed to facilitate the deployment of more stable long-term contracts such as Power Purchase Agreements (PPAs). PPAs are a type of long-term contract, specifically made between a green supplier and a consumer like a company or SME. In addition, any public subsidy for new renewable or nuclear capacity needs to be provided through a two-way contract for difference (CfD) between an electricity generator and a public actor, guaranteeing revenue for energy producers. When the market price is low, generators are guaranteed returns, and when the market price rises, the surplus profits are passed on to consumers. Finally, the foreseen reform will equip the Agency for the Cooperation of Energy Regulators (ACER) to better monitor the overall integrity and transparency of the energy market.

Overall, the proposal aims to make the European electricity market less dependent on fossil fuels and supplier revenues will be increasingly shaped by long-term contracts, such as CfDs and PPas. Long-term contracts also increase investment certainty. In the next steps, the co-legislators, the European Parliament and the Council of Ministers will have to adopt their positions. They are aiming for a rapid adaptation. However,different positions towards reforming the market exist among Member States.