The consequences of the Russian invasion of Ukraine, which have caused unprecedented energy bills for European consumers, have led the European Union to rethink the operation of its electricity market. After more than 20 years in force, there is a consensus that the time has come to reform its rules. Where there is no agreement, a priori, is in the scope of the changes, but today the European Commission has aligned itself with countries such as Germany or the Netherlands, which are committed to a ‘light’ reform that can be approved quickly instead of propose more structural changes as Spain proposes, which will be the country that from next July 1 will preside over the Council of Ministers of Energy.
The reform adopted today by the community executive does not question the foundations of the current marginalist system, through which the latest technology used to produce electricity -last year, gas- is what defines the price of this but introduces mechanisms correctors that, according to Brussels, will limit its role and promote the definitive takeoff of renewables, in addition to supporting investments in nuclear technology, which will allow reductions in generation costs to be passed on to customers. Consultations with market players have revealed that the current system “works well” and “sends the correct price signal” to consumers, that is, it gives incentives to reduce consumption, says the community executive.
“The fundamentals of the market, in effect, are not touched,” the European Commissioner for Energy, Kadri Simson, explained today at a press conference from Strasbourg. “The design of intraday markets continues to be the most effective in order to ensure that the cheapest technologies are used first to produce electricity and guarantees that there will be trade between member states,” Kadri has defended, who maintains that this is not It is incompatible with achieving, de facto, the decoupling of the price of gas from that paid for electricity, an objective that is intended to be achieved by other means.
The basis of the European Commission’s proposal, which must now be debated and addressed by the Energy Ministers of the Twenty-seven, is the commitment to long-term electricity contracts with fixed prices that protect consumers from price volatility. that was seen throughout the past year with devastating effects for homes and industry. In fact, Brussels recommends to consumers that, if this system goes ahead, they combine two types of contracts to meet their energy needs: one with fixed rates (for daily consumption) and another, with variables (for water pumps, for example). .
Purchase and sale agreements (PPAs) between industrial companies and energy companies already exist but are hardly used and the adopted proposal intends to intensify their use. To encourage investment in renewable energy, Brussels proposes to companies offering “contracts for difference”, guaranteed by the State, in which it and the energy companies agree on a price, he said, so as to give income stability to companies so that They can invest, but at the end condition both parties liquidate the difference, in favor of one or the other. If the market price is lower, the State pays the company the difference, instead of the consumer, who is protected against price fluctuations. If it is higher, it is the company that compensates the public coffers.
These two-way contracts will be mandatory not only for new investments in renewables that receive public support (wind, solar, geothermal and hydroelectric) but, at the request of France, the largest nuclear power in Europe, also nuclear energy with the argument, which wins day by day, that it is a low carbon technology. This system, defends Brussels, acts as a barrier to the volatility of the intraday markets and the final bills of consumers.
In addition, the proposal introduces new mechanisms to create regional electricity ‘hubs’ capable of proposing future contracts to various countries, aligning their duration with cross-border web use permits, increasing competition, a possibility that will hardly have any effect in countries such as Spain or Portugal, which have very limited interconnections with respect to the rest of the continent. The proposal also includes consumer support mechanisms by obliging governments to protect the most vulnerable so that they cannot be disconnected from the network if they do not pay the bill.
Brussels maintains that the EU will arrive next winter much more prepared than last year, when it had to search for alternative gas suppliers to Russia on the run. That change has already been made and the upcoming season is expected to be less volatile than the last. In addition to promoting renewables, to encourage the reduction of gas consumption, the proposal proposes giving operators the possibility of paying market participants to consume less electricity in periods of high demand. However, it does not rule out that episodes of drastic price increases will occur again, which is why it suggests that if a crisis situation is declared, governments may take measures to lower the electricity rate by up to 80% of the bill for consumers and SMEs , a system similar to the one adopted by Germany last year.
Maintaining what works in the current system, in force since the late 1990s, adopted in the wake of the liberalization of the sector, and adopting specific changes in aspects that have turned out to be outdated as a result of the energy crisis are the two principles that have guided the legislative work of the European Commission but not all member states see the situation in the same way. Spain, France and Greece demand changes in the price formation mechanisms, while Germany, Denmark, the Netherlands and Lithuania, among others, cling to the benefits that the current system has had over the last two decades and prefer to make only surgical changes. , which is the option that Brussels has favored, with the additional argument that in this way the reform will be able to go ahead this year and enter into force in time for the winter season.
Teresa, vice president and minister for the Ecological Transition, also considers that the reform is urgent but is committed to more structural changes and is confident that she can persuade her colleagues in favor of a more ambitious agreement than what the European Commission has proposed today. The Spanish Government is pleased that Brussels shares its diagnosis of the situation, from the idea that “term contracting is key to facilitating investment in renewables, guaranteeing security of supply and offering stable prices for consumers” or the long-term vision price fixing through auctions and new types of contracts. “However, there is a lack of ambition and more empowerment and prominence in the future mix of capacity mechanisms,” say sources from the Ministry, who are instead betting on “an evolution in line with the intermittent renewable mix that needs backup technologies” and a clearer commitment to long-term contracts between suppliers and contracts for difference.
