The European Parliament’s industry committee has put its weight behind a minimal reform of the bloc’s electricity market, paving the way for final negotiations with EU countries to start as soon as possible.

The electricity market reform, tabled by the European Commission in March, seeks to avoid a repeat of last year’s energy crisis, which saw consumers faced with soaring energy bills due to record-high gas prices.

But with the crisis now seemingly passed, reform talks among EU countries have stalled over special treatment for nuclear and coal.

Meanwhile, the European Parliament opted for less controversial positions – abolishing the unpopular revenue cap for renewables and nuclear electricity producers while upholding state support measures and focusing on social protection.

“With this agreement, Parliament puts citizens at the centre of the design of the electricity market,” said Spanish EU lawmaker Nicolás González Casares, the chief Parliament negotiator for the socialists and democrats (S&D).

The position was adopted with 55 votes in favour and 16 against. A second vote confirmed that approval by the Parliament’s full House would not be necessary, although this may be challenged by the nationalist ECR and far-right ID political groups.

“This majority is more comfortable than I’d hoped for,” explained Morten Petersen, a Danish EU lawmaker who negotiated on behalf of the centrist Renew group. “It is such a sensitive matter and could have been all over the place,” he told EURACTIV.

Low ambition

This relative success is partly due to the low ambition adopted by parliament.

“We didn’t want to revolutionise the system,” Petersen said, while Cornelia Ernst, a German EU lawmaker from the far-left Die Linke, said the report adopted in committee “fails to tackle real issues.”

“This is more of an evolutionary approach,” confirmed Cillian O’Donoghue, policy director at Eurelectric, the EU power industry association, which had earlier warned MEPs against upsetting the current market design.

Nonetheless, parliament sent one “crucial” signal to industry, Eurelectric noted: any revenue cap for nuclear, hydropower and renewables is now off the table.

Therefore, “you could argue that it is a soft position, by no means a revolution,” noted Petersen.

The centre-right European People’s Party (EPP) claimed much of the credit for this.

“A cap on revenues from energy sources with lower marginal costs, so-called inframarginal technologies, was an absolute red line for the EPP Group,” said Maria da Graça Carvalho, the Portuguese lawmaker who handled the negotiations on behalf of the EPP.

The second key aspect of the proposal, a focus on long-term markets and revamp of the energy subsidy toolbox available to EU countries, was similarly softened by Parliament.

Notably, MEPs rejected proposals to make so-called Contracts for Difference (CfDs) mandatory whenever governments intervene on the market to support investments in electricity production.

Having subsidy mechanisms other than CfDs available was a “key priority to Renew,” said MEP Petersen. The EPP’s Carvalho stressed that respecting different national subsidy schemes was essential to her party, too.

Social safeguards

When European Commission chief Ursula von der Leyen announced the reform last year, right in the middle of the energy crisis, she argued that the current electricity market design, based on merit order, had failed to do deliver cheap energy for consumers.

“I think that was just wrong. And fortunately, we have now recognised that in the democratic process,” said Michael Bloss, the Greens’ negotiator who hails from Germany.

The merit order is a foundational principle of commodity markets, where high-cost producers are only called upon in times of high demand that low-cost producers are unable to meet.

The idea for reform “came from a totally different context” in late 2022 ahead of an “uncertain” winter, Petersen explained. “The negotiation process has shown that there are benefits to the merit order system,” he argued.

As a direct response to the energy crisis, the Parliament’s text is rich in additional social safeguards.

“The light stays on,” stressed Bloss, who noted that parliament’s position would ban utilities from turning off the power for the poor unable to pay their energy bills.

Additionally, Parliament wants to ensure that consumers have a right to be supplied with electricity – even if their suppliers go under. Pre-payment schemes, disadvantageous to those with little cash to spare, should similarly be scrapped.

But the focus on long-term contracts should benefit consumers too, argues Eurelectric, saying the crisis “showed that people want predictable prices”.

Next steps

As EU institutions head into summer recess, little progress on electricity market reform is expected until September.

All eyes are now on EU countries, with France and Germany at loggerheads over state suppor to nuclear while Poland is asking for more leeway to support coal power to ensure supply security.

“We don’t exclude nuclear,” said Carvalho, who underlined one key difference between the Parliament’s position and the stance adopted by France. While Paris wants to support renovations of its existing fleet of nuclear plants, Parliament insists that only newly-built plants should be eligible for funding generated from contracts for difference, skirting EU subsidy rules.

“Clearly, there is a big fight going on,” said Petersen. “The question of how CfD revenues are going to be used remains a key sticking point,” he explained.

In September, the Parliament’s plenary assembly will give its green light to the start of negotiations. Provided EU countries find a compromise by then, negotiations could start in September and wrap up in December, Portuguese lawmaker Carvalho hopes.

Negotiations among EU countries are overseen by Spain, which is currently holding the EU’s six-month rotating presidency and could soon change government after national elections scheduled on Sunday (23 July).

However, lawmakers are confident that the electricity market reform will go ahead as planned. “I don’t foresee that this will cause troubles,” Carvahlo said.

Source: Euractiv.com