The EU countries want to better protect consumers from escalating electricity prices. After months of negotiations, energy ministers agreed on a common position on proposals for a reform of the European electricity market in Luxembourg on Tuesday.
“The aim of the reform is to make electricity prices more independent of the fluctuating prices for fossil fuels, to protect consumers from price peaks, to accelerate the use of renewable energies and to improve consumer protection,” the states said. The agreement now enables talks with the European Parliament to complete the reform.
The compromise aims to protect consumers from wildly fluctuating prices, such as those that occurred during the energy crisis last year. In addition, they and industry should benefit from cheaper electricity production. It is also planned that private individuals will have the right to fixed-price contracts as well as contracts with dynamic prices, as the announcement shows. Furthermore, customers in need of protection should be better protected from having their electricity turned off.
The focus of the effort is new long-term contracts between governments and electricity producers, so-called Contracts for Difference (CfDs). With these contracts for differences, states guarantee electricity producers a minimum price for electricity when they make new investments. This should apply to investments in renewable energies and nuclear power. If the market price falls below an agreed price, the state steps in and makes up the difference. If the price is higher, the surplus goes to the state. This is intended to create incentives for the domestic production of clean electricity.
Germany and France crossed
For a long time, the positions of the countries differed widely. Germany and France in particular faced each other. Berlin feared that a provision in the new regulation allowing subsidies for nuclear power could ultimately distort competition in the EU to the advantage of countries with large nuclear power production, such as France.
The compromise that has now been found stipulates that long-term contracts for subsidized energy prices should also be possible for existing nuclear power plants, but are subject to the European Commission's rules for state aid, said EU Energy Commissioner Kadri Simson. The Commission will ensure that there are no undue distortions of competition, said Simson.
Federal Economics Minister Robert Habeck (Greens) said that Europe had demonstrated its ability to act. "The agreement improves access for consumers and industry to low electricity prices across Europe." The crisis year of 2022 has shown that the European electricity market is fundamentally functioning. Despite great burdens, it was possible to guarantee the electricity supply in one of the biggest electricity crises in European history. “With the new electricity market design, we are now further strengthening the electricity system.”
Due to extremely high electricity prices last year, calls for a reform of the European electricity market had become loud. One reason for the high prices was that around half of France's nuclear power plants temporarily failed. The increase was also a result of skyrocketing gas prices due to Russia's war of aggression on Ukraine.
The electricity market in the EU works according to the so-called merit order principle. This refers to the order of deployment of the power plants offered on the electricity exchange. Power plants that can produce electricity cheaply are used first to meet demand. These are, for example, wind turbines. In the end, the price depends on the most expensive power plant that was switched on last - often gas power plants.
The basis for the compromise is a legislative proposal from the EU Commission from the spring. Parliament agreed on a common position in mid-September.