Brussels, six months after the European Commission president unveiled reform ideas for the electricity market, Ursula von der Leyen will announce her next steps. The changes are modest in scope, aimed at easing barriers to long-term contracts for energy and outlining measures that could expand consumer options for contract offers. The stance aligns closely with Eurelectric, the European electricity employers’ group, which favors minimal upheaval alongside Germany and seven other countries that prefer limited reform. Spain, meanwhile, is pushing to influence price design in nuclear and hydro power, potentially lowering consumer bills by reducing the windfall profits tied to those technologies.
Yet the Spanish government remains cautiously optimistic about a Community proposal that includes many of Spain’s preferred approaches. Officially, the Presidency of the Council of the European Union is preparing for six crucial months in the second half of 2023 to secure agreement before the European Parliament elections in mid-2024. Iberdrola, Endesa, and EDP, represented by Aelec, have given a positive read, noting that the plan does not propose structural or retrospective interventions. These are among the core issues shaping reform.
What does Brussels offer?
The European Commission is guiding a shift toward longer-term energy contracts while keeping the existing framework largely intact. The plan promotes bilateral contracts between energy producers and consumers, known as PPAs, with public support to approve these deals. Developers participating in public tenders can reserve a portion for sale through PPAs. Spain stands out for the number of these arrangements, which often occur within vertically integrated groups that encompass both distribution and generation, with unclear pass-through of prices to customers.
The proposal also envisions price regulation through auctions via Contracts for Difference and supports extending the life of existing investments in renewables and nuclear energy. The aim is to reinforce these technologies while maintaining a market design that favors low-cost, reliable generation.
A public discussion around price setting for nuclear and hydro remains, with the Commission acknowledging that these technologies have delivered consistently high revenues. Experts highlight concerns about paying very high prices for hydro while costs are much lower, urging careful use of public resources and a fair distribution of benefits. The debate reflects divergent views among Member States and experts.
Does the marginalist system continue?
Events from late last year show broad sentiment that the market could evolve beyond marginal pricing, though recent statements suggest the reform would preserve core elements of the current system. The focus remains on ensuring that intraday markets promote the use of the cheapest technologies and enable better trade between countries. The dialogue continues about whether a new pricing model could still honor those objectives while addressing national concerns.
Advocates creating capacity markets without altering existing rules
Another area of attention is capacity markets designed to reward availability and to improve the flexibility of demand response and storage. Brussels encourages design work on capacity mechanisms but notes that, today, these tools are often challenging to deploy in practice.
The Spanish government and large electricity companies support standardizing and expanding services such as demand response and storage within integrated markets, rather than creating uncoordinated, separate mechanisms. Industry groups suggest that a comprehensive approach will better utilize all available resources rather than compartmentalizing technologies. The Commission signals openness to negotiating changes that address national concerns within the broader reform framework.
More weight for consumers
Consumers could gain greater autonomy under the reform. The plan envisions offering fixed-price options alongside the right to access multiple offers within a single contract, enabling households to benefit from price volatility during off-peak hours. In many markets, fixed-price options are already common and consumer entitlements have expanded since mid-2021.
There is also a push for allowing households to share surplus energy with neighbors, potentially encouraging local energy communities and stronger consumer influence in governance. Smart meters would play a key role, enabling these mechanisms to be generalized and making demand reduction and storage more effective within the market structure.
Will this reform prevent a new price crisis?
Forecasts suggest the reform alone may not fully resolve price volatility. A senior European Parliament member argues that even with reform, persistent high prices could recur if exceptional factors arise. If prices spike dramatically, a tariff gap could emerge, exposing consumers to ongoing risk. Some economists caution that external factors outside the proposal may still drive prices, and thus the reform must be part of a broader strategy to stabilize the market over time.