EU states agree deal on electricity market to protect consumers from price volatility, boost cheap renewable power – GWC Mag

On Tuesday EU member states finally agreed on how to reform the bloc’s electricity market after long months of difficult negotiations. The introduction of long-term contracts, particularly contracts for difference (CfDs), should stabilise prices for consumers and give certainty to investors in new generation. But the big concern had been how the state support implicit in CfDs might be used to bias the playing field in favour of nuclear and coal, explains Benjamin Wehrmann at CLEW. France and Germany led the opposing sides of the argument, but a compromise has been reached on how far support for nuclear can go. Wehrmann summarises the new deal, which now goes to the EU Parliament for further negotiation which should see nuclear and coal in the spotlight again.

France and Germany claim an agreement by EU states on reforming the bloc’s electricity market is a reward for national efforts to put a check on each other’s demands in the energy sector. Following months of heated debates about the reform of the power market’s design, the EU energy council on Tuesday (17 October) reached an agreement designed to shield electricity prices from fossil fuel price hikes, particularly regarding natural gas. The agreement also included a deal on the role of nuclear power, a major point of disagreement between Paris and Berlin, whose views on the technology’s future are fundamentally opposed.

Paying the average price for electricity, not the spiking fossil price

“This is good news for the [power] bills of French people,” France’s energy minister Agnes Pannier-Runacher said in an interview with radio station France Info. The reform agreed by EU energy ministers at their meeting in Luxembourg means that “European customers will pay the average production price” for electricity, rather than shouldering the costs of price fluctuations on fossil fuel markets, Pannier-Runacher said.

Germany’s energy minister Robert Habeck said the agreement had shown “Europe’s ability to act” on urgent matters for citizens and guarantee access to affordable electricity prices for households and industry. Consumers could now “benefit from the low production costs of non-fossil energy sources,” Habeck said in a ministry statement.

Representing the Spanish EU Council presidency, Spain’s ecological transition minister Teresa Ribera said reaching such an agreement would have been “unimaginable only a couple of years ago.” The reform will not only benefit consumers financially, but also propel the expansion of clean energy sources, she said. The Council presidency will now lead negotiations with the European Parliament for adopting the proposed reform.

Gas-fired plants will no longer determine market rates for electricity

The negative effects of the existing system became apparent during the energy crisis in 2022. An extreme spike in the cost of natural gas caused a rise in overall power costs due to gas-fired power plants determining market rates for electricity.

The reform proposed by the European Commission in spring this year includes the introduction of long-term contracts, particularly so-called contracts for difference (CfDs), which are supposed to cap the effects of market disruptions like those caused by Russia’s war on Ukraine. If market prices are above production costs, producers must pass on the difference to the state, which will use the funds to relieve customers. If they are lower, the state will compensate producers. “The gas price may rise, but it will only account for a small fraction of the bill,” Pannier-Runacher said.

The role of Nuclear

The new agreement also covers the role of nuclear power in Europe’s energy system, which the French energy minister hailed as a success given Germany’s “reluctance” to accept the technology as an asset in EU climate action. Pannier-Runacher argued that nuclear power, France’s most important source of electricity, had come out as a major winner of the deal: “Today, the funding of future nuclear power capacity, as well as that of existing plants and their runtime extension, has been guaranteed.” Investors could now be reassured that the state will guarantee predictable returns, she said. At the same time, the minister insisted the agreement would not push renewables expansion in France to the sidelines. “We want to massively invest in nuclear and renewable power.”

Both France and Germany have repeatedly stressed they are looking for ways to shield European companies from high energy prices and make them more competitive vis-à-vis industrial competitors in China or the U.S., who benefit greatly from support schemes. French president Emmanuel Macron and German chancellor Olaf Scholz shortly before the EU energy council meeting had vowed that both countries are ready to agree on a reform, shrugging off the obstacle posed by the nuclear dispute.

However, the German government had repeatedly opposed including nuclear power into the reform, citing the technology’s unresolved technical and environmental challenges, as well as concerns that the French government could use it to resolve open questions regarding the funding of its nuclear power ambitions and disproportionately spur its national industry through state support. For Germany, whose power production is much more dependent on gas-fired plants, the reform had mainly aimed at reassuring investors in wind and solar power installations.

State-owned French energy company EDF, which operates the country’s nuclear fleet, is currently obliged to provide electricity at a cheap rate determined by a state commission, a mechanism that is due to expire in 2025. To finance the smooth functioning of its nuclear fleet, which suffered from unplanned shutdowns throughout 2022, France hopes to use the proceeds generated with the new CfD scheme to invest in existing reactors. Germany rejected the idea, insisting instead that only new installations should be funded through the scheme. Habeck said that Germany had successfully brokered “fair competition on Europe’s power market” in the negotiations.

However, the agreement reached by the states now also includes funding of existing installations with proceeds from CfDs if these investments go into retrofitting, runtime extensions or capacity increases, said Michael Bloss, member of the EU Parliament for the German Green Party. However, Bloss argued the deal still is a much-needed success that would pave the way for further negotiations in the parliament. “The Council cannot move on without the parliament,” Bloss said. He said the focus had to be on expanding renewables and protecting consumers from price hikes. “New subsidies for coal or a special treatment of nuclear power are out of the question,” he argued. He said freeing nuclear plants from market exposure in the proposed way would be “inefficient and un-European,” adding that the European Parliament “will demand improvements.” Fair competition would mean that renewables ultimately prevail, he insisted, adding that “loopholes” for old nuclear plants in France and coal plants in Poland could not be accepted. “These energy sources are a thing of the past.”

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Benjamin Wehrmann is a staff Correspondent for Clean Energy Wire (CLEW)

This article is published under a “Creative Commons Attribution 4.0 International Licence (CC BY 4.0)”