The European debate over power plant revenue caps and market reform
The European Parliament is examining ways to keep revenue caps for power plants that run on renewables, nuclear power, and hydropower. This mechanism is seen as a response to the energy price crisis, intended to reduce abrupt spikes in generator revenues and to fund protective measures for consumers during price surges. The draft, prepared by a team in Brussels and shaped by discussions in the energy sector, explains that market revenue caps were introduced during the crisis to stabilize prices and finance the interventions necessary to cushion households and businesses from volatility.
One of the key changes, drafted by a Spanish author working with industry groups and consumer associations after more than 50 meetings, focuses on how the proposed reforms would be discussed across political groups before a final version is considered for approval in July. Negotiations will then move to the member states and the European Commission for alignment with the goals of the Spanish Presidency of the Council in the second half of the year. The process mirrors attempts to balance the agenda of governments, utilities, and regulators while ensuring a robust framework for the market.
The cap on income for these plants is proposed at 180 euros per megawatt hour. This target aims to moderate price shocks for consumers while preserving adequate returns for operators during the ongoing energy crisis. The European electricity sector has already seen varied reactions. Kristian Ruby, secretary general of Eurelectric, expressed serious concerns to regional media about potential fragmentation of the internal market and the possibility of revenues falling short of expectations if the regime becomes too rigid. In their view, the measure could complicate cross-border trading and reduce the predictability that markets require.
Spain has already piloted similar measures. In September 2021, the Council approved a cut in the revenue received by nuclear, hydroelectric, and renewable plants in response to gas price surges. The approach faced pushback from electricity suppliers, who successfully lobbied to soften the measure and exempt contracts under existing power purchase agreements. The initial forecasted revenue collection of about 2.6 billion euros per quarter was reduced to roughly 370 million euros for 2022. Endesa and other major players highlighted a reduction in profits, underscoring the real-world impact of such caps on corporate performance.
The referred price drop, tied to wholesale market trends, is a critical factor in the discussion. Analysts expect the wholesale price to remain elevated for a period, with projections suggesting a continuation of higher average margins for several months. Early figures showed wholesale prices near the mid-70 euro per megawatt hour range for a recent month, a benchmark that informs policy decisions about how aggressively to deploy revenue caps in different jurisdictions.
capacity markets
As part of the reform, capacity mechanisms are treated as a structural feature of national electricity markets. These mechanisms focus on ensuring that plants can be called upon to deliver energy when needed, rather than paying merely for energy produced. This includes hydroelectric pumping, storage facilities, and battery or combined-cycle plants. The aim is to align capacity payments with the system’s reliability needs, while keeping the energy market transparent and competitive. The Spanish government has pursued expansion of these tools to better reflect availability rather than output alone and to support the integration of storage technologies.
There is a push to establish a European database for power purchase agreements to improve transparency and facilitate new entrants into the market. The plan envisions a standardized framework for contracts that would allow smaller players to participate more easily and would include a European platform by the end of 2024. In the area of public support for electricity production, the emphasis would be on prioritizing support for the most vulnerable consumers and, during crises, on helping energy-intensive industries maintain operation. The approach also considers how to recognize charging services for electric vehicles when measuring system flexibility.
consumer protection
On the consumer protection front, measures aim to shield vulnerable households, ensuring uninterrupted electricity supplies for basic needs. Member states would complement these protections by taking special steps during peak summer and winter months. The text outlines requirements for suppliers not to alter contract terms during the same period and to avoid premature terminations, supporting households that need predictable energy costs and reliable service. The overarching goal is to strengthen consumer rights while maintaining a resilient and affordable energy supply across the union.