Parliament adopts reform of the EU electricity market

This article is brought to you in association with the European Parliament.

The reform adopted on Thursday will make the EU electricity market more stable, affordable, and sustainable.

The measures, composed of a regulation and a directive already agreed upon with the Council, were adopted with 433 in favour, 140 against and 15 abstentions, and 473 votes to 80, with 27 abstentions, respectively.

The law will protect consumers against volatile prices. MEPs ensured that they will have the right to access fixed-price contracts or dynamic price contracts, and receive important information on the options they sign up to. Suppliers will not be allowed to unilaterally change the terms of a contract.

MEPs also secured that EU countries can prohibit suppliers from cutting the electricity supply of vulnerable customers, including during disputes between suppliers and customers.

Contracts for Difference

The legislation provides for so-called “Contracts for Difference” (CfDs), or equivalent schemes with the same effects, to encourage energy investment. In a CfD, a public authority compensates the energy producer if market prices fall too steeply, but it collects payments from them if prices are too high. The use of CfDs will be allowed in all investments in new electricity production, whether from renewable or nuclear energy.

Electricity price crisis

The text sets out a mechanism to declare an electricity price crisis. In a situation of very high prices and under certain conditions, the EU may declare a regional or EU-wide electricity price crisis, allowing member states to take temporary measures to set electricity prices for SMEs and energy intensive industrial consumers.

Quote

“This reform puts citizens at the forefront of electricity market design. The text includes measures to protect citizens, especially the most vulnerable and to accelerate the deployment of renewable energy sources. The Parliament has taken a step forward in democratising energy, creating a market design that responds to the failures exposed by the energy crisis. All consumers, including micro, small, and medium-size enterprises will have access to long-term, affordable and stable prices.” lead MEP Nicolás González Casares (S&D, ES) said.

Next steps

After Parliament’s approval, Council also needs to formally adopt the legislation to become law.

Background

Energy prices have been rising since mid-2021, initially in the context of the post-COVID-19 economic recovery. However, energy prices rose steeply due to gas supply problems following Russia’s war against Ukraine in February 2022. High gas prices had an immediate effect on electricity prices, as they are linked together under the merit order system, where the most expensive (usually fossil fuel-based) energy source sets the overall electricity price.