Europe’s EU electricity market reform explained

No time to read?
Get a summary

Twenty seven EU member states reached an agreement on electricity market reform this Tuesday, a culmination of a busy day of talks and a push led by Teresa Ribera, the Third Vice-President and Minister of Ecological Transition. The pact emerged as part of Spain’s presidency of the EU, born from the urgent need to reduce dependence on fossil fuels such as gas as energy prices climbed during the ongoing energy crisis.

1. When does it start?

The discussion on electricity market reform is not finished yet. The agreement follows the European Commission’s March proposal and currently aims to deliver services such as a mandate for negotiations with the European Parliament as a trilateral process begins. This procedure, commonly referred to in Brussels as trilogies, serves to harmonize differences before final text is settled. The presidency and the Commission intend to reach a final agreement before the year ends, after which the text would become EU law. Once an accord is reached, both the Council and the European Parliament must give their approval. With elections in Brussels slated for mid-2024, any delay could jeopardize the entire timetable.

2. Will prices fall?

The reform initiative responds to the energy crisis by aiming to decouple electricity prices from the gas price and to prevent sharp price spikes while encouraging more renewable energy input. The proposals under consideration come from three EU institutions, and they envision a more stable price environment through two mechanisms: the expansion of private energy purchase agreements, known as PPAs, potentially supported by state guarantees, and the establishment of a model based on contracts for differences. This model involves long term contracts supported by the government to stabilize investment in electricity production. It acts as a cushion when market prices rise and provides a shared benefit when prices fall. If prices climb during an energy crisis, governments can channel revenue to cushion consumers’ bills.

3. Will it be reflected on the retail bill?

The approach to futures markets has limited immediate impact in the near term. The ministry led by Teresa Ribera initially explored nudging existing plants, especially hydro and nuclear, to migrate from daily market pricing toward regulated contracts for differences. In the end the adopted path emphasizes voluntary participation, making effects somewhat uncertain. Spain has also placed emphasis on capacity markets to reward existing technologies as a guarantee of supply. A streamlined mechanism is intended to lessen gas’s influence on the daily market, but the reform does not go so far as to fully mandate it.

4. No other changes?

The Council’s agreement, still awaiting full publication, includes additional consumer protection measures proposed by the European Commission. The text contemplates an obligation for electric companies to offer fixed price rates and recognizes consumers’ right to share excess energy with neighbors without forming formal energy communities that would encourage self consumption.

5. Will it prevent another crisis?

The reform strengthens the Council’s role in declaring price crises at the regional or Union level and sets rules for when governments may activate extraordinary measures. A price crisis is defined as very high wholesale electricity prices lasting at least six months, with expectations of continued sharp increases in retail prices for a minimum of three months. These criteria provide a framework for coordinated action rather than ad hoc responses.

6. Are there any quick acting measures?

The most urgent step is for the Council to allow member states to impose a cap on extraordinary income for producers with the lowest marginal costs, a measure available by 30 June 2024 under the same conditions as current emergency provisions. In Spain this cap is set at 67 euros per megawatt hour for energy produced by hydro and nuclear plants, a limit that remains in force through the end of the year. Major electricity firms have pressed for relief, and this measure helped stabilize prices during the worst months of the crisis. This rapid action is designed to keep the market from spiraling while longer term reforms take effect.

No time to read?
Get a summary
Previous Article

Health-Driven Departure and Personal Alliances in the Russian Song Theater

Next Article

Accident Concert Cancellations: Moscow Show Scrapped Amid Political Discourse