EU Council signs updated rules for electricity market reform

The EU Council has signed the updated rules for the electricity market reform to make electricity prices less dependent on volatile fossil fuel prices. The updated rules promote the use of power purchase agreements (PPAs), two-way contracts for difference (CfDs), among other measures to create a buffer between markets and the electricity bills paid by consumers. The rules seek to promote the investment in renewables under PPAs by cutting unnecessary red tape and charges and allowing for the creation of guarantee schemes to provide stability for customers and investors. CfDs and equivalent schemes (for new power-generating facilities based on wind energy, solar energy, geothermal energy, hydropower without reservoir and nuclear energy) are reinforced to protect energy generators with a minimum remuneration that ensures their operations and efficient reaction to market changes, while requiring the pay back of excess revenues during high price periods to be invested to reduce electricity costs for final customers or used to develop distribution grids. Under these new rules, the Council also acquires the power to declare a crisis, based on a Commission proposal, in the event of very high prices in wholesale electricity markets, or if there is a sharp increase in electricity retail prices.

The reform of the electricity market is the EU’s long-term response to the energy crisis experienced in 2022. The reform was first presented by the European Commission in March 2023, and it seeks to make electricity prices less dependent on the price of fossil fuels. It amends the electricity regulations from 2019 and electricity directives from 2018-2019, as well as the regulation on the protection against market manipulation in the wholesale energy market (REMIT).