Energy - EU: Better protect consumers from escalating electricity prices
Consumers in the EU are to be better protected from escalating electricity prices in future. Negotiators from the EU countries and the European Parliament agreed on a reform of the European electricity market in Strasbourg. In addition to more stable prices, the changes are intended to promote the expansion of renewable energies. Here are some questions and answers.
How does the electricity market in the EU work?
The electricity market in the EU works according to the merit order principle - and will continue to do so. This refers to the order in which the power plants offering electricity on the electricity exchange are deployed. Power plants that can produce electricity cheaply are used first to cover demand. These are wind power plants, for example. In the end, however, the price is based on the last power plant to be switched on, i.e. the most expensive - often gas-fired power plants.
Why is the electricity market in the EU being reformed?
Calls for a reform of the European electricity market have become loud due to extremely high electricity prices in the past year. One of the reasons for the high prices was soaring gas prices due to the Russian war of aggression against Ukraine. It was also noticeable that at times around half of France's nuclear power plants were out of action due to defects or maintenance. The reform aims to make the electricity market "more stable, affordable and sustainable", according to the European Parliament. The basis for the agreement that has now been reached was a legislative proposal from the EU Commission in the spring.
What applies to consumers?
In future, consumers should have the right to both fixed-price contracts and contracts with dynamic prices, according to the Parliament. They should also receive important information about the options they take out. Furthermore, providers should not be allowed to unilaterally change the terms of the contract. "This should ensure that all consumers, including small businesses, benefit from long-term, affordable and stable prices and mitigate the impact of sudden price shocks," it said.
The countries are also to prohibit suppliers from cutting off the electricity supply to vulnerable customers - including in the event of disputes between suppliers and customers, according to the parliament.
In the event of an electricity price crisis, which can be declared by the EU countries under certain conditions, electricity prices for vulnerable and disadvantaged customers should be able to be reduced further, according to the countries' communication.
How are renewable energies to be expanded?
At the heart of the reform are new long-term contracts between governments and electricity producers, so-called Contracts for Difference (CfDs). With these contracts for difference, states guarantee electricity producers a minimum price for electricity if they make new investments. This applies to investments in renewable energies such as wind and solar power and in nuclear power.
If the market price falls below an agreed price, the state steps in and makes up the difference. If the price is higher, the surplus goes to the state. This is intended to create incentives for the domestic production of clean electricity.
What are the reactions?
The Green Group in the European Parliament cannot support the agreement reached, said German MEP Michael Bloss on Thursday. There are positive elements in the agreement, such as progress on the social side. But too many coal subsidies were possible. "One day after the historic agreement at the climate conference in Dubai, the EU is deciding on new fossil fuel subsidies for the dirtiest coal-fired power plants. This makes the EU completely untrustworthy." With this agreement, the EU can immediately relinquish its distinction as a climate pioneer.
Christian Ehler (CDU), energy policy spokesperson for the Christian Socialist EPP parliamentary group, said that the agreement would make a decisive contribution to achieving the expansion targets for renewables and guaranteeing citizens better access to stable, affordable and clean energy in the long term. "At the same time, we are protecting market participants from arbitrary interventions in the market, which would deter investment and thus take us away from our expansion and climate targets."
What happens now?
The agreement still needs to be formally confirmed by the EU Parliament and the countries before the reform can enter into force.
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- The reform of the European electricity market, agreed upon by EU negotiators and the European Parliament in Strasbourg, aims to promote the expansion of renewable energies and provide more stable electricity prices for consumers.
- In the EU electricity market, power plants are deployed according to the merit order principle, with cheaper power plants, such as wind power plants, being used first to meet demand.
- High electricity prices in the EU have led to calls for market reform, with soaring gas prices due to the Russian war of aggression against Ukraine and maintenance issues at French nuclear power plants being contributing factors.
- The reform aims to make the electricity market "more stable, affordable, and sustainable," according to the European Parliament, with consumers being offered both fixed-price and dynamic-price contracts and protection against unilateral contract changes.
- To support the expansion of renewable energies, the reform includes new long-term contracts between governments and electricity producers, known as Contracts for Difference (CfDs), which guarantee a minimum price for electricity production.
- The agreement on the European electricity market reform has received mixed reactions, with the Green Group in the European Parliament criticizing the potential for coal subsidies and others praising its potential to achieve renewable energy expansion targets.
- The agreement still needs to be formally confirmed by the EU Parliament and the countries before the reform can enter into force and begin impacting the electricity market and energy prices throughout Europe.
- In response to potential electricity price crises, the agreement allows for the reduction of electricity prices for vulnerable and disadvantaged customers in certain conditions.
- The reform of the European electricity market is intended to support the transition to a more sustainable and affordable energy future for consumers throughout Europe, particularly in light of the changing climate and potential disruptions to traditional energy sources.
Source: www.stern.de
