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Electricity market reform: Council signs off on updated rules

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Electricity market reform: Council signs off on updated rules

Image: European Union

Consumers across the EU will now be able to benefit from more stable energy prices, less dependency on the price of fossil fuels and better protection from future crises, on the way to a carbon-free European Union.

More stable and predictable energy prices while ensuring efficient market functioning and avoiding distortions of the internal market

Power purchase agreements (PPAs) are long-term contracts that provide stability for customers and investors; the updated rules promote their uptake and cut unnecessary red tape and charges. In line with their decarbonisation plans, member states may further support investment in renewables under power purchase agreements, including by setting up guarantee schemes.

Moreover, member states will also use two-way contracts for difference (CfDs), or equivalent schemes with the same effects, for their direct price support schemes, in order to support new investments in electricity generation and make sure electricity prices are less affected by price volatility of fossil fuel-based markets.

Under a two-way contract for difference with a public entity, energy generators would be protected with minimum remuneration while it should be ensured that they operate and participate efficiently in the electricity markets and react to market circumstances. In high price periods, they would have to pay back excess revenues, which can then be distributed to final customers (while avoiding distortions to competition and trade in the internal market), be invested to reduce electricity costs for final customers or used to develop distribution grids.

Two-way contracts for difference can apply to investments in new power-generating facilities based on wind energy, solar energy, geothermal energy, hydropower without reservoir and nuclear energy.

Better prepared against future crises

The new rules give the Council the power to declare a crisis, on the basis of a Commission proposal, in the event of very high prices in wholesale electricity markets, or if there is a sharp increase in electricity retail prices.

Action to be taken by member states in case of a declared electricity crisis includes already existing measures under the current EU rules, such as further reduction of electricity prices for vulnerable and disadvantaged customers. Member states should also prevent any undue distortion of the internal electricity market, including by ensuring level-playing field for suppliers during the crisis period.

Protecting and empowering consumers

Member states will reinforce their measures to protect vulnerable and energy poor customers, including banning disconnections. The reform also further encourages energy sharing schemes, in complement to the existing provisions on renewable energy communities and citizen energy communities.

Ensuring security of supply

On the way to a carbon-free system, the so-called capacity mechanisms – measures introduced by member states to address capacity adequacy concerns – will become a more structural element of the electricity market and will no longer be temporary measures. This will improve security of supply and will enhance flexibility, as the share of renewables will gradually increase.

Next steps

The electricity market regulation formally adopted amends the current electricity regulation, together with targeted changes in the ACER regulation. It will now be signed and published in the Official Journal of the EU. It will enter into force on the twentieth day following publication and will then become directly applicable in all member states.

For reasons of legal certainty and clarity, the provisions on amending the current electricity directive and the renewables directive have been split from the proposed regulation and have become a self-standing directive, also formally adopted. EU member states will have up to six months to adapt their national legislation to the provisions of the electricity market directive.


Source: European Council