EU electricity market reform now agreed in the European Parliament

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Santander | According to Euractiv, political groups in the European Parliament have reached an agreement on the “general conditions of the EU electricity market reform… paving the way for a swift adoption of the proposal in the EU assembly before holding decisive talks with EU member states to finalise the law”. The electricity market reform, proposed by the European Commission in March, aims to avoid a repeat of the energy crisis and electricity price hikes suffered by consumers in 2022. The Commission’s proposals are currently being analysed by member states and the Parliament, which must agree on a common text before it can become law. While member states have so far failed to reach an agreement, the European Parliament is making progress.

According to El Economista, among other issues, MEPs agreed that, in the event of a spike in electricity prices, a maximum price for sub-marginal energy production will not be set. Instead, the European Commission will have to declare an emergency, which will trigger the application of automatic measures based on simple and objective conditions. Support for renewables will be provided through Contracts for Difference, which will not be retroactive, but will be available for nuclear energy. The European Parliament also supports PPAs, with increased transparency.

Research Opinion: We believe it is important for Europe to move towards a new electricity market structure. The risks of a system of marginal electricity prices, driven mainly by gas prices, were clearly demonstrated during the energy crisis. We foresee the market evolving towards long-term bilateral contracts, including PPAs, the use of Contracts for Difference to support renewables, the introduction of capacity markets to enhance security of supply and the use of marginal energy prices for short-term balancing. We consider that these changes would largely favour integrated utilities with renewables, flexible conventional generation and a well-diversified customer portfolio, while merchant power producers, especially solar, appear to be more at risk.

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