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EU Council reaches agreement on reforming the electricity market design

The European Council has reached an agreement on a proposal to amend the EU's electricity market design (EMD), in an attempt to reduce the volatility of electricity prices, protect consumers from price spikes, improve consumer protection and speed up the deployment of renewables.

Under the terms of the agreement, two-way contracts for difference (CfDs) would become the mandatory model used when public funding is involved in long term contracts (with some exceptions) for new wind, solar, geothermal, hydropower (without reservoir) and nuclear projects. Two-way CfDs provide support to generators when the market price is lower than an agreed price (strike price), and ask generators to pay back the difference when the market price is higher than the strike price. The rules for these two-way CfDs would only apply after a 3-year transition period (5 years for offshore hybrid projects connected to 2 or more bidding zones). Revenues collected by the Member States through this mechanism would be redistributed to final customers and could finance the costs of the direct price support schemes or investments to reduce electricity costs for final customers.

In addition, the Council aims to strengthen consumer protection by setting up a free choice of a supplier and the possibility of accessing dynamic electricity prices, fixed-term, and fixed-price contracts. It will protect vulnerable customers from disconnections by putting in place ‘supplier of last resort’ systems. The reform also adds a temporary option to apply regulated prices, even below cost, to small and medium sized enterprises (SMEs) in times of crisis.

The Council has also agreed to remove the temporary nature of capacity mechanisms (remuneration of power plants to guarantee medium and long-term security of electricity supply). In addition, it introduces a derogation from existing CO2 emission limits for generators to receive support from capacity mechanisms until 31 December 2028.

The agreed proposal will now be presented to the European Parliament and negotiated to reach a final agreement.

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