EU unveils power market reform

The European Commission on Tuesday outlined its proposed changes to the EU power market design, focusing on boosting investment in renewable energy sources and protecting consumers.

The commission's proposal put an emphasis on "bringing the lower cost of renewables to consumers" and giving them the choice for their supply contracts. It confirmed a hedging obligation for suppliers, mentioned earlier in the EU consultation but rejected by most market participants. The reform also aims to ensure that suppliers offer different types of long-term contracts, notably fixed-price deals, with consumers being able to sign multiple contracts. And a supplier of last resort will be established in every member state.

"[These measures] will lead to a situation where there is less supplier bankruptcy," a senior commission official said.

An amendment of the Remit directive and a strengthening of EU energy regulators association Acer's role in cross-border investigations is also expected to protect consumers against market manipulation.

In addition, the commission mentioned an obligation for member states to ensure that small companies can have access to a market-based guarantee for power purchase agreements (PPAs). Member states can decide to put in place that guarantee scheme, but should not provide support to PPAs that purchase generation from fossil fuels.

And contracts for difference (CfDs) were listed as the required tool states should use when support is deemed necessary for renewables and new nuclear projects, confirming a previous leaked document. Excess revenues from CfDs will then be redistributed to consumers, which was not previously an obligation.

Technological upgrades — such as repowering or life span extensions for existing nuclear plants — will also be supported through CfDs, according to the senior commission official.

Renewable energy investment is expected to be boosted through "transparency obligations" for system operators on grid congestion, with further support coming from the gate closure time of the intraday market being brought closer to the time of delivery to make trading more efficient. The creation of regional trading hubs was listed as one of the ways to increase liquidity in forward markets.

But the reform would leave the merit order price formation unchanged. The commission has explored alternatives — notably "pay-as-bid" or fully regulated wholesale prices — but they have not produced a better result, the commission's senior official said.

"The consensus that emerged from the EU consultation was not to continue with the recent crisis measures and not make it structural," the official added.

A final legal text will now have to be agreed with the European Parliament and EU member states before coming into force. Commission experts want the legislation to take effect before next winter and before EU elections in May-June 2024.

By Tatiana Serova