Electricity Market Design. For the planet and for the people

After tough negotiations, a considerable amount of resistance from certain interest groups and even some last-minute drama, with an attempt by a minority of MEPs to change the compromises during the September plenary session, the European Parliament has finally approved the mandate for trilogue negotiations on the Electricity Market Design (EMD) Reform.

Now, the ball is in the hands of the Council, where the discussions between Member States are being equally demanding, to say the least.

The main point of disagreement is how state-aid to electricity producers will be addressed, through a mechanism known as Contracts for Difference (CfDs); which involves subsidies to energy projects. Some Member States, notably France, want these contracts to be applied to existing projects while others, such as Germany, insist that their use must be limited to new projects.

The main concern, for those defending this last position, is that France will use these contracts to subsidise its prolific nuclear power industry, existing plants included, thus creating a supply of cheaper electricity for the French European industry and households. This would create competition issues and could potentially undermine the investment in other technologies, such as solar and hydroelectric.

Now, the Spanish Presidency is trying to propose a solution that would create a level-playing field and be acceptable to all Member States. One possibility is allowing these subsidies to be given to existing projects while, at the same time, establishing a limit for the state-aid given to each sector. However, for the time being, there are no news of an imminent agreement.

Keeping the eyes on the goal

It is very important that Member States overcome this impasse as soon as possible, considering the European Commission’s ambition of having this file closed before the end of the current legislature and, more importantly, the urgent need to have in place the changes introduced by this reform.

This revision of the Electricity Market Design is based on three major goals: reinforcement of the energy internal market, acceleration of the investments for the energy transition and consumers’ protection.

We had a good basis with the European Commission’s proposal and, at the European Parliament, where I was the EPP negotiator on this file, we managed to introduce important improvements.

This reform places consumers at the centre, by enhancing protection, empowerment and hedging against price fluctuations. It creates the conditions for more incentives for investments, encouraging a better and wider use of instruments for longer-term investments, such as power purchase agreements and the mentioned CfDs. Finally, it strengthens the internal energy market, by stressing the importance of an efficient grid development, the need of further investments in the networks and related infrastructures and by preparing the energy market for the future (innovation, digitalisation and decentralisation).

Perhaps the Council can find some inspiration in the discussions that took place at the European Parliament, where we managed to find solutions for our differences. For example, we did not introduce any measure that could bring to distort and fragment the EU market, such as the cap on revenues for electricity produced with inframarginal technologies (from renewables). We were also able to maintain solid criteria for a declaration of an energy emergency, in order to avoid living in a crisis mode for long periods and justify ad hoc national measures risking to damage integration, competition and investments.

On other aspects, the shadows from other politic groups and I, had to make more compromises, always keeping in mind that the bottom line is that we need a well-balanced reform that, once implemented, will be positive for our sustainability goals and for the Europeans.

A final note to mention the revision of the Regulation on Wholesale Energy Market Integrity and Transparency (REMIT), of which I was rapporteur. Although treated separately, this file was an important part of the Electricity Market Design Reform, notably in regards to avoid market manipulation, improve security of supply and ensure more stability to the electricity prices. The solution we found, reinforcing the investigative powers of ACER, the European Agency for the Cooperation of the national regulators, while respecting the role of national competent authorities, will help protect Europe from attempts to abuse the mechanisms determining energy prices and, hopefully, prevent situations such as the one we witnessed in the past years.