The institutions of the European Union reached an agreement this morning to reform the electricity market, after ten hours of negotiations. With the pact, prices will be more stable and affordable than until now, with greater support for the most vulnerable consumers.
One of the main points of the agreement, and one that most complicated the negotiations, was the issue of contracts for difference. An instrument that already existed, but was hardly used, in which the State stipulates a price between the buyer and the generator and in which the difference is then reimbursed based on the real price, which in practice becomes a subsidy. In this way, the generator always receives stable income for the electricity it produces and price volatility is reduced.
The European Parliament and Council agreed that these new contracts can be used both for new investments in renewable energy and in nuclear energy – something already provided for in the Commission’s initial proposal – but also for existing plants. A clear concession to France, which insisted on this issue from the beginning of the negotiation. But, after the agreement, these types of pacts will be applied after a transition period of three years, “to maintain the legal security of the projects already underway.”
In the case of existing plants, the contracts will not be applied automatically, but will have to have the endorsement of the European Commission, which has committed to ensuring that there are no distortions in the markets and will ensure this in the framework of State aid, as is currently done. An express request from Germany, which feared that any aid could affect its competitiveness.
Likewise, as the countries had already requested, the benefits achieved thanks to contracts for difference will have more flexibility and States will be able to decide whether they go to final consumers, or to reduce electricity costs.
The pact – which must now be ratified by the States and the European Parliament – also has a clear commitment to renewable energies, because they are much cheaper and less volatile than fossil energies. Thus, the pact will make it possible to favor long-term voluntary contracts, PPAs (for their acronym in English), energy purchase and sale contracts between a renewable generator and consumers, countries will have more facilities to encourage them, although they will not be obliged.
“This agreement is great news, because it will allow us to further reduce dependence on Russian gas, accelerate the deployment of renewable and fossil fuel-free energy sources and offer more affordable electricity to EU citizens,” he defended after the agreement. the Third Vice President and Minister for the Ecological Transition, Teresa Ribera.
Another of the big issues that this agreement sought was to protect vulnerable consumers. The institutions agreed that in the event of a price crisis (such as the one experienced in the summer of 2022, when prices rose by more than 300 euros per megawatt), a mechanism will be activated by the countries, at the proposal of the Commission. In that case, measures may be adopted to alleviate prices for vulnerable customers, in addition to prohibiting any electricity cuts to citizens suffering from energy poverty, although with certain conditions to avoid “market distortions.”
Thus, almost at the end of its rotating presidency of the EU Council, Spain closes a pact that was among one of its objectives: to complete a reform of the electricity market before the end of the year, although the Commission’s initial proposal is much less ambitious than expected. that was originally anticipated.
