EU clinches deal on electricity market reform, leaves options open for coal and nuclear

The European Union reached a political agreement on Thursday (14 December) to reform the bloc’s electricity market, ending months of protracted talks between the European Parliament and EU member states on how to finance new low-carbon generation capacity.

“Today, the Council and the Parliament reached a provisional agreement to reform the EU’s electricity market design (EMD),” said a statement released by the presidency of the Council of the EU, currently held by Spain.

The EU’s plans, tabled by the European Commission in March, are aimed at making the market less vulnerable to volatility and were presented as a response to Russia’s invasion of Ukraine, which sent energy prices spiralling for consumers and businesses last year.

“The reform 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,” the Council statement said.

The deal will now have to be formally adopted by both the Council and Parliament before it becomes law, a process which is usually a rubber-stamping exercise.

Contracts for difference

One of the key aspects of the reform – and the subject of protracted talks between EU countries – was how national governments would be able to support the construction of new renewable or nuclear energy facilities.

Thursday’s political deal broadly sticks to the European Commission’s initial proposal by requiring governments to use mandatory two-way contracts for difference (CfDs) – with a price ceiling and a floor – as soon as they intervene on the market to support new power generation facilities.

This will ensure a “minimum remuneration” for the construction of new renewable and nuclear energy assets, in line with calls from countries like France and Germany, which were reflected in the Council’s deal of 17 October.

At the same time, the upward limit placed on CfDs is meant to avoid “excess remuneration” for power plants when electricity prices are high, making sure it reflects the cost of the new investment to avoid overcompensation.

The October agreement among EU member states had already clarified rules on financing for the prolongation of France’s existing fleet of 53 nuclear reactors, for which CfDs will be optional but not mandatory.

As a result, the deal reached last month between the French government and power utility EDF to regulate the sales price of nuclear electricity remains valid.

It will be up to the European Commission to determine on a case-by-case basis whether compensation is excessive or not, based on EU state aid rules.

Potential windfall profits generated by electricity companies above the price ceiling will be redistributed to final consumers, the Council statement said. “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,” it adds.

The deal was hailed by French energy transition minister Agnès Pannier-Runacher.

“The European agreement reached last night by the European Union is excellent news,” she said in a statement to the media. “It offers the possibility of stable prices that are representative of the costs of the electricity system that supplies them,” she added, saying this was “in perfect line” with the Council’s October agreement.

“At the same time, it gives us the means to ensure the long-term financing of the transformation of our electricity system, in order to meet the challenge of tripling the share of renewables and nuclear power, as stated at COP28,” she said.

Coal subsidies in crisis times

Another contentious point in yesterday’s talks was a demand by Poland to be able to deviate from EU rules and activate its existing peak coal power plants in case of an energy crisis.

Under the deal, an “exceptional derogation” from the EU’s CO2 emission limit for power plants can be obtained as part of “already authorised capacity mechanisms” and in cases that are “duly justified”, the Council said.

Michael Bloss, a Green lawmaker from Germany, denounced the new Polish exemption clause, saying it undermines Europe’s climate policies.

“Originally, these particularly climate-damaging power plants were supposed to be taken off the grid in 2025. With this exception, the most climate-damaging coal-fired power plants can now be supported for 3.5 years longer than previously planned,” he said.

“This is a bad sign for the Green Deal and Europe’s ability to modernise,” he warned.

The emergency mechanism will soon be reviewed, however, with the Commission due to table proposals to “simplify the process of assessing capacity mechanisms” within nine months after the entry into force of the new regulation.

The Council will also have the power to declare “a temporary regional or Union-wide electricity price crisis”, on the basis of a Commission proposal. This mechanism can be triggered if electricity prices are expected to stay above a given average for at least six months on the wholesale market and three months on the retail market, the Council statement said.

Consumer protection

New rules were also agreed to protect consumers, with provisions shielding households against disconnections when they are facing financial difficulties or if companies go bankrupt.

“This is good news for consumers, who have paid the full price for the energy crisis over recent months,” said Monique Goyens, director of BEUC, the EU consumer organisation.

“It will enable consumers to keep the lights (and heating) on this winter,” she said.

Renewable energy producers will also likely be relieved that an emergency mechanism to capture the windfall profits of power companies, introduced during the energy crisis last year, was not retained in the final agreement as an option for the long term.

“The measure is an obstacle to investment in clean energy sources,” they warned in a letter to the European Commission earlier this month.

[Edited by Nathalie Weatherald. With reporting from AFP]

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