High electricity prices put a lot of pressure on politicians last year. One consequence of this is the planned electricity market reform. But the EU Commission has decided not to take the big step.
According to the President of the European Commission, Ursula von der Leyen, consumers should benefit most from the planned reform of the European electricity market. “Consumers are at the center of this reform,” said the German politician in an interview with the German Press Agency and other agencies of the European Newsroom. A key goal is to bring consumers closer to the benefits of low-cost renewable energy.
The EU Commission intends to present its proposals for reforming the electricity market today. Electricity prices have skyrocketed over the past year. The reason for this was, among other things, that at times around half of the French nuclear power plants failed. In addition, the rise in electricity prices was a consequence of skyrocketing gas prices as a result of the Russian war of aggression in Ukraine.
War in Ukraine causes gas prices to rise
Because the electricity market in the EU works according to the so-called merit order principle. This describes the order in which the power plants that are offered on the electricity exchange operate. Power plants that can produce electricity cheaply are used first to meet demand. These are wind turbines, for example. In the end, however, the price depends on the power plant that was switched on last and is therefore the most expensive. These are often the gas power plants. Because the price of gas has risen sharply against the background of the war in Ukraine, electricity has also become more expensive.
However, the relevant gas price is currently well below last year’s record values. Most recently it was around 50 euros per megawatt hour – last summer it was sometimes significantly more than 300 euros.
A far-reaching reform of the electricity market is not planned. Instead, according to drafts that have already been published, consumers and companies should increasingly benefit from long-term contracts and thus from more stable prices.
European elections as deadline
Von der Leyen is counting on the EU states and the European Parliament to conclude negotiations on the new proposal by the European elections in May 2024. This was well thought out and intensive consultation was held with experts. “So I think it’s worth working hard to get it done before the European elections.”
Unlike France and Spain, for example, the federal government should welcome the fact that the EU Commission is initially refraining from making very far-reaching changes. Germany, along with countries such as the Netherlands, Denmark and Luxembourg, had repeatedly warned against hasty reforms.
First of all, quick and easy steps are needed, said Secretary of State for Economic Affairs Sven Giegold (Greens). He spoke, for example, of “measures that will quickly bring us to more long-term contracts and also ensure that consumers are protected from price spikes”. The systematic long-term reforms would then have to be designed in such a way that they do not cause any damage and make Europe fit for an energy system without fossil fuels.
Experts: it needs comprehensive reform
Economist Georg Zachmann from the Bruegel think tank in Brussels also thinks it’s good news that no radical reforms are coming for the time being. In the past year, this could not be ruled out due to the political pressure resulting from the exploding electricity prices, Zachmann told the dpa. “The reform proposals that were discussed in 2022 would all have been quite failures.”
But Zachmann also sees the need for a major, comprehensive reform in the coming years. With the proposals now expected, the problems of the past year might be solved, but not those of the next three decades. He refers, for example, to the massive electrification of society and the digitization of the electricity market. In addition, according to him, significantly more individual players, for example with solar or wind systems, will be active on the market in the future. This major reform is then likely to be a legislative package for the next legislative period – even if the current EU Commission should already be preparing it, said Zachmann.
Source: Stern
