EU New Electricity Market Design To Speed-Up Renewable Deployment

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A latest report shared by the European Council and the Parliament has revealed that they have reached a provisional agreement to reform the EU’s electricity market design (EMD).

“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. 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”, said Teresa Ribera, Spanish Third Vice President of the government and Minister for the Ecological Transition and Demographic Challenges. 

The reform aims to make electricity prices less dependent on volatile fossil fuel prices. It aims to 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 EU’s protection against market manipulation. Through better monitoring and transparency (REMIT), a provisional agreement on REMIT was reached on November 16, 2023.

Power Purchase Agreements (PPAs)

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 for in the REMIT regulation.

On access to affordable energy during an electricity price crisis, both co-legislators 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 to further reduce electricity prices for vulnerable and disadvantaged customers, based on current electricity directive. Furthermore, provisions aimed at avoiding undue distortions or fragmentation in the internal market are incorporated.

Protection from disconnections for vulnerable customers– 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.

Capacity remuneration mechanisms – Both co-legislators agreed to make capacity mechanisms a more structural element of the electricity market. In addition, 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.

Contracts for Difference (CfDs) – 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 rules for two-way CfDs will only apply after a transition period of three years after the entry into force of the regulation, in order to maintain legal certainty for ongoing projects. The provisional agreement provides 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.

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