The European Union will reform the electricity market

Isbel Lázaro.

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Unión Europea

Inspenet, October 19, 2023.

The consensus of the European Union

The Energy Ministers of the European Union have reached a consensus regarding the modification of the electricity market with the aim of reducing volatility, after a day of intense negotiations. The main disagreement was resolved by confirming that incentives will be given to nuclear plants, a request made by France.

The central point of contention, which refers to two-way contracts for difference (CfDs) that involve public intervention in prices, will be applied to investments in new nuclear , wind, solar, geothermal and hydroelectric power plants without reservoirs. Investments aimed at modernizing existing plants or prolonging their useful life will also have access to these contracts.

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In a consensus, the Twenty-seven have established that CfDs will be the mandatory model in situations involving public financing in long-term contracts, although with certain exceptions.

It will also be feasible to apply these contracts to certain existing plants. However, in this context, requirements will be established to ensure a level playing field, which is in line with the demands raised by Germany.

The European Council has incorporated greater flexibility regarding the redistribution of income generated by the State through two-way contracts for difference (CfD). Said income will be directed both to final consumers and to the financing of direct price support programs or projects aimed at reducing electricity costs for final consumers.

Importantly, the European Commission agreed to carry out periodic reviews of contracts for difference to ensure their compliance with state aid regulations.

Likewise, the Council suggested modifications aimed at simplifying the process within the existing framework of capacity mechanisms. Furthermore, it requested the Commission to prepare a comprehensive report to analyze additional alternatives to simplify the procedure for applying capacity mechanisms.

How would the new electricity market affect consumers?

Regarding consumer protection, Energy Ministers agreed to strengthen it by guaranteeing freedom of choice of energy supplier and the possibility of accessing dynamic electricity tariffs, specific duration contracts and fixed price contracts, unless Providers do not offer these latter options and as long as this does not reduce the general availability of fixed price contracts.

In addition, it was agreed to protect vulnerable consumers against disconnections by implementing “supplier of last resort” systems that ensure continuity of supply, at least for residential consumers, in case these systems are no longer available.

It was also established that all consumers would have the right to participate in energy sharing systems, which would allow them to use, share and store the energy they generate for themselves. All consumer rights would extend to end consumers participating in such systems.

This agreement was reached despite the opposing positions of Germany and France, and only received one vote against, which came from Hungary.


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