The European Parliament agrees on an electricity reform that avoids ups and downs in prices
The European Parliament has approved this Wednesday the reform of the electricity market of the European Union (EU). The main objective is guarantee more predictable and stable prices for the consumer and put in place a response mechanism to other possible future energy crises like the one that has been dragging on since the summer of 2021, in the heat of gas prices in international markets and CO2 emission rights. The final text received 55 votes in favour, 15 against and two abstentions.
In this way, after the four majority groups (popular, socialist, liberal and green) reached an agreement at the beginning of July, the Industry, Research and Energy Commission (ITRE) has given the green light to the project led by the Spanish Nicolás González Casares as official speaker. The session has also served to authorize the negotiators of the European Parliament to start the inter-institutional negotiations, known as trialogues, in which the MEPs will seek an agreement with the Council, chaired by Spain during the second semester. This decision has had 47 votes in favor, 20 against and five abstentions.
Specifically, the European Parliament proposes that the European Commission can declare, by decision, a regional or electricity price crisis at EU level, except in duly justified circumstances, if the following conditions are met: there is an increase in wholesale market prices of two and a half times (for 6 months) compared to the previous five years. A minimum of 180 euros per megawatt hour (MWh) is also established for the declaration of the crisis and if retail prices increase by 60% compared to the two previous years (for three consecutive months).
Furthermore, under these circumstances, Member States may set a price for energy to the consumer and the electro-intensive industry. This point has been included in the agreement in order to eliminate the maximum income limit for producers (‘revenue cap’) from González Casares’ proposal. Thus, the text finally does not include any mention of the limits of the income of inframarginal technologies. Brussels will evaluate (by June 2024 at the latest) different options to establish a “temporary relief valve mechanism” (‘relief valve mechanism’) and subsequently present a legislative proposal.
“While the current energy model was efficient, the truth is that it was too focused on the short term, reflecting the volatility of energy prices during the energy crisis. The proposal that we have on the table today seeks to stabilize energy prices, promoting long-term contracts. The advantages? For consumers, stable prices and forget about shocks on your bill. For the industry, long-term planning and knowing with greater certainty what its costs will be. For investors, have a certainty of future prices. For everyone, bringing the low cost of renewables closer to final bills. For the planet, achieving decarbonisation goals in the most efficient and realistic way possible”, says Susana Solís, MEP of the Renew Europe Group.
On the other hand, with regard to demand peaks, the Commission’s original proposal has been watered down. The compromise reached by MEPs stipulates that the European Agency for the Cooperation of Energy Regulators (ACER) will assess whether network operators should acquire peak shaving products before December 2024while ensuring that these products do not distort the functioning of the electricity market. Specifically, the minimum size of the offer acquired by network managers will be 100 kilowatts (kW).
Likewise, the compromise reached by Parliament stipulates that, no later than January 1, 2026, the intraday closing time of the interzonal gate shall not be earlier than 30 minutes before real time, provided that this measure does not lead to an increase in greenhouse gas emissions. Exceptions to this requirement may be granted. The request for these by the grid managers (Red Eléctrica in Spain) will include an impact assessment and an action plan aimed at reducing the shutdown time to 30 minutes no later than January 1, 2029. This mainly affects peripheral States such as Spain and Italy.
One of the key aspects of the agreement reached by the European Parliament is the incentive to long-term sales contracts, known as PPA (‘Power Purchase Agreement’). Countries should facilitate renewable energy PPAs in order to ensure more predictable electricity prices, through guarantee mechanisms. By 31 December 2024, the Commission will establish a market platform for PPAs, which will be used on a voluntary basis. The idea is to facilitate transparency in this type of contract.
Contracts for Difference
A provision is also added through which the Commission will assess before January 2026 whether obstacles to the adoption of the PPAs persist, while also checking whether there is sufficient transparency in the markets. Finally, ACER is obliged to create, maintain and manage a database of EU PPAs that will function as a digital platform and will be used to facilitate monitoring by national regulatory authorities.
The Contracts for Difference (CfD) They have also been one of the most irritating points of the negotiation together with the failed ‘revenue cap’. The obligation is introduced that direct price support schemes for new investments in electricity generation (wind, solar, geothermal, hydraulic without reservoir and nuclear) be through this form or equivalent schemes, as long as they are evaluated and approved by the Commission. In addition, a limitation has been included to the extensions of existing facilities, so that the coverage offered by the CfDs must be proportional to the investment made in relation to the total investment costs of the plant.
For his part, the income collected when the market price is higher than the agreed price will be distributed to final electricity customers, paying special attention to the vulnerable. However, Member States may also use the revenue from CfDs to support energy transition investments in distribution grid development, renewable energy sources, electric vehicle charging infrastructure, energy efficiency and storage, or to cover electricity-intensive industries at risk of carbon leakage. Finally, the Commission, no later than twelve months after the entry into force of this regulation, will develop guidelines on the application of two-way contracts for disputes aimed at assisting countries in their creation.
Despite the fact that Parliament has reached an agreement, there is still a long way to go. The Council still has to adopt a common position (‘general approach’) to be able to negotiate the electricity reform in trialogue with Parliament. In the trialogues, the rapporteur on behalf of the Parliament and the current presidency (in this case Spain) on behalf of the Council, negotiate on the legislative text to reach common ground with the European Commission acting as arbitrator. The confrontation between France and Germany promises to bring a tail and lengthen the negotiations.
Under this context, The Spanish Presidency of the European Union has asked the rest of the members to facilitate the talks to close the reform by giving in to some of their requests. From Spain they urge to try to reach an agreement as soon as possible with the aim that the reform is agreed before the end of the summer and can be applied during this year. The third vice president and minister for the Ecological Transition, Teresa Ribera, will send her partners a new draft. According to Ribera herself, it is based on the different opinions of her European counterparts and on the principles of the proper functioning of the market and equal conditions to guarantee the decarbonization process.