The economic consequences of the Russian invasion of Ukraine have rendered obsolete some of the rules designed 20 years ago to accompany the liberalization of the European electricity market and support the deployment of renewable energies, but without questioning the foundations of the system, which worth preserving
This is the starting point of the proposal adopted yesterday by the European Commission (EC) to reform the market through adjustments to the basic price formation mechanism which, contrary to what Spain or France claim, would not be touched. If it goes ahead, consumers will have the possibility of having several contracts – and meters – to have access to fixed and also variable rates that can be interesting for charging the batteries of electric cars or water pumps. The changes, according to Brussels, will reduce price peaks and allow individuals to benefit from the reduction in production costs of renewables.
“The fundamentals of the market, in fact, are not touched”, the European Commissioner for Energy, Kadri Simson, explained at the press conference. “The design of short-term markets remains the most effective in ensuring that the cheapest technologies are used first to produce electricity,” argued Kadri, who claims that this is not incompatible with de facto achieving other ways, the decoupling between the price of gas and electricity.
The key to the reform, which must be agreed between the Energy Ministers of the Twenty-Seven and the Eurochamber, is the commitment to long-term electricity contracts with fixed prices that protect consumers from situations of price volatility. This will be achieved through incentives to sign private contracts between producers and marketers, known as PPA (by the acronym in English) and which are currently little used.
On the other hand, to promote renewable energies and deal with the increase in electrification needs, Brussels proposes “contracts for differences” guaranteed by the State in which it and the energy companies agree on a fixed price, which which will give companies income stability to invest, but with the condition that in the end both parties settle 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 will compensate it.
These two-way contracts will be mandatory not only for investments in renewables that receive public support, but also, at the request of France, for nuclear energy, with the argument that it is a technology with low carbon emissions. This proposal includes mechanisms to support consumers, as it obliges governments to protect the most vulnerable, so that they cannot be disconnected from the grid if they do not pay the bill.
Brussels says that the EU will arrive next winter much better prepared than last year, when it had to search for alternative gas suppliers in Russia, but does not rule out that there will be episodes of drastic increases in prices. If a crisis situation is declared, governments could take steps to lower the electricity tariff by up to 80% of the bill for consumers and SMEs, a system similar to that adopted by Berlin.
Brussels thus aligns with the theses of countries such as Germany, Denmark, the Netherlands and Lithuania, which, with the argument that it is a time of crisis, ask to make only surgical changes in the name of security of supply and price stability, in the face of the approaches defended by France or Spain, which from July will preside over the EU’s Energy Council. Teresa Ribera, vice-president and head of the Ministry for Ecological Transition, has proposed to deploy the best persuasive skills to convince the countries of the north that precisely because of the current difficult situation, which undermines the competitiveness of European industry vis-à-vis the American one , they have to be more ambitious.
Transició Ecològica gave a positive reading of the Brussels proposal, which they consider “inspired” by the Spanish proposals, as it includes some ideas that a year ago “we were told were impossible”, such as the measures to reduce “drastically” the role of gas in the formation of the price of light or opt for long-term contracts, even if it is done by other means and with less determination than the central government would like. Spain, say ministry sources, will have “a decisive role” as the EU’s rotating presidency to “enrich the text of the Commission and create a consensus among the Twenty-seven”.
