European Commission to Propose an Electricity Market Reform Mid-March

Last year, after Russia’s illegal invasion of Ukraine, the European Commission committed to putting forward a plan to reform the EU’s electricity market. Russia’s war of aggression on Ukraine sent oil prices to a record high, resulting in unsustainable energy prices for industry and citizens across Europe. The Commission was subsequently put under immense pressure from Member States (MS) to reform EU energy rules. The Commission is now scheduled to present the highly anticipated revised rules on 16 March. 

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 upcoming reform will focus on aspects requiring urgent adjustments to make the market more resilient and to reduce the impact of gas prices on electricity bills.

On 23 January, the Commission opened a public consultation seeking views and priorities of stakeholders across the EU. The consultation received some 1,300 responses. The Irish Government’s response to the consultation can be found here.

It is expected that the Commission’s proposal will seek to expand Europe’s use of long-term contracts that provide power plants with a fixed price for their electricity – contracts for difference (CfDs) and power purchase agreements (PPA). Expanding such contracts would create a buffer between consumers and volatile prices in short-term energy markets. The EU’s Energy Commissioner Kadri Simson has expressed her commitment to protecting consumers and guaranteeing that they can benefit from increasing renewable energy deployment, while at the same time boosting investment in renewables.

In terms of how Member States (MS) are reacting, the bloc has split in two. On the one hand, a group of seven Member States, led by Germany and including Denmark, Estonia, Finland, Luxembourg, Latvia and the Netherlands, sent a letter to the Commission on 13 February asking it to keep the reform of the electricity market “targeted”, meaning that it maintains the benefits of the current design, supports the green transition and incentivises to invest in renewables. Key points of the letter can be outlined as follows: 

• Continuing to integrate EU electricity markets through interconnection capacity, free formation of wholesale electricity prices and removing barriers to integration.
• Reliable, predictable market is necessary to secure investor confidence.
• Barriers to PPAs should be removed and the EU should explore how they can be incentivised. Long-term contractual agreements are to be supported.
• CfDs should keep the market functioning – they should be voluntary, should focus on renewables and not be imposed retroactively. 
• Ensure effective cross-border trade as an important element of the security of supply.

Spain and France, on the other hand, are leading the push for a less targeted and more radical overhaul, with France arguing that the EU needs to stop the marginal pricing system. France and Spain’s energy mixes are reliant on low-carbon sources as opposed to fossil fuels. France supports PPAs and CfDs and argues that they should be extended to cover all low-carbon energy sources, including nuclear power. 

Sweden, who holds the Council Presidency, is committed to progress on the file as far as possible after the Commission’s proposal. In July, the rotating presidency will be transferred from Sweden to Spain.