In 2022, consumers suddenly had to dig deep into their pockets for electricity – this will no longer happen so quickly in the EU in the future. The planned electricity market reform has now received the final green light.
The planned reform of the European electricity market should now clear the last hurdle. At the end of last year, the EU states agreed with the European Parliament on the reform, which is intended to better protect consumers from escalating electricity prices in the future. In addition to more stable prices, the innovations are also intended to promote the expansion of renewable energies. The reform is to be finally adopted at a Council of Ministers in Brussels. The most important questions and answers:
Why is the electricity market in the EU being reformed?
Due to extremely high electricity prices in 2022, calls for a reform of the European electricity market had become loud. The reason for the high prices was, among other things, exploding gas prices due to the Russian war of aggression on Ukraine. It was also noticeable that at times around half of the French nuclear power plants failed due to defects or maintenance. The reform aims to make the electricity market “more stable, affordable and sustainable,” the European Parliament said after the agreement in December. The basis for the agreement that has now been found was a legislative proposal from the EU Commission.
How does the electricity market work in the EU?
The electricity market in the EU works according to the so-called merit order principle, and the reform does not change this. 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 association of municipal companies welcomed the fact that the reform would retain the basic mechanisms of the market, but called for further efforts to be made for more flexibility in the energy system.
What applies to consumers?
In the future, consumers should have the right to both fixed-price contracts and contracts with dynamic prices. Consumers could choose both secure, long-term prices and contracts with changing prices if they want to take advantage of price fluctuations – for example to use electricity when it is cheaper for charging electric cars or for heat pumps.
In addition, consumers should receive important information about the options they are taking out. Furthermore, providers should not be allowed to change the contract terms unilaterally. “This is to ensure that all consumers, including small businesses, benefit from long-term, affordable and stable prices and to mitigate the impact of sudden price shocks,” Parliament said in December.
The federal states should also prohibit suppliers from cutting off the electricity supply to vulnerable customers – including in the event of disputes between suppliers and customers. In the event of an electricity price crisis, which can be declared by EU countries under certain conditions, electricity prices for vulnerable and disadvantaged customers should be able to be further reduced.
How should renewable energies be expanded?
The focus of the reform 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 such as wind and solar power 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.
Source: Stern
