Agreement reached by Council on electricity market design reform after months-long wait

Overview

Recently, the European Council reached an agreement on their proposal for a Regulation to amend the EU's EMD. This agreement follows from the European Commission's suggestion to begin negotiations for electricity market design ('EMD') reforms earlier in March 2023.
This reform aims to deal with the shortcomings of the current EMD by stabilising energy price spikes, reducing the high usage and cost of fossil fuels and ultimately, providing for stronger protection from future electricity crisis' for consumers, companies, and industries.

About the proposal

This proposal aims to achieve this through the following four ambitions, which will be detailed below:

1. stabilising long-term electricity markets;
2. implementing long-term capacity mechanisms;
3. providing stronger consumer protection; and
4. allowing for affordable energy prices.

Stabilising long-term electricity markets will be achieved by facilitating the use of power purchase agreements ('PPAs'). PPAs are made between producers and electricity purchasers and play an important role in providing long-term price stability and certainty. For this reason, removing unjustified barriers, procedures, and charges ordinarily required for the establishment of PPAs and replacing this with more facilitative measures such as state-backed guarantee schemes at market prices amongst other measures will assist in boosting the usage of PPAs.

Stabilisation will also be accomplished through the widespread mandatory use (mandate will not apply to support schemes not directly linked to electricity generation) of contracts for differences ('CFDs'). These provide public entities the ability and incentives to invest in hydropower, wind, solar, geothermal, and nuclear energy projects. CFDs are governed by private law and allow developers to benefit from the protection of facing high and volatile wholesale electricity prices.

Capacity mechanisms will allow for power plants to be used for electricity generating purposes, providing both medium and long-term security of electricity supplies. Accordingly, allowing for less-complex adoption procedures will be important for the purposes of resource adequacy and for creating connected energy systems.

Consumer protection will provide consumers with supplier choice, access to dynamic electricity prices, and consumer-friendly contracts which are either fixed-term or fixed-price (with certain limitations and exceptions in place). In addition, the Council has accepted to implement protection for customers by implementing stricter rules for suppliers and "supplier of last resort" systems to deal the possibility of electricity shortcomings.

Affordable energy prices will be enabled for small and medium sized enterprises ('SMEs') in times of crisis. In addition, amendments have been suggested from the current conditions for declaring an electricity price crisis. This allows for the declaration of such crisis to be made when: (i) on a wholesale basis, increased electricity prices may last for six months or longer and (ii) on a retail basis, increased electricity prices are expected to last for three months or longer.
Looking ahead, this general approach is set to be negotiated and finalised with the European Parliament. The interinstitutional trilogue is currently ongoing.
For further information, please contact Silke Goldberg.