In a draft proposal, the European Union wants to expand the use of contracts that pay power plants a fixed price for electricity, in order to protect European consumers from large price fluctuations. The proposal is part of the reform of the EU’s electricity market rules, which was undertaken last year after electricity prices rose due to record gas prices.
Limited changes for predictable, fixed-price electricity contracts
The EU executive’s draft proposal avoids a major overhaul of the electricity market that some member states have called for, suggesting instead limited changes to push countries towards more predictable, fixed-price electricity contracts. If EU countries want to support new investments in wind, solar, geothermal, hydro and nuclear power, they should use a two-way contract for difference (CfD) or equivalent, the draft says.
The goal of this proposal is to provide a stable revenue stream for investors and help make consumers’ energy bills less volatile. It also aims to accelerate the move away from fossil fuels in Europe.
Two-way CfDs: a solution for producers and consumers
Two-way CfDs provide generators with a fixed “strike price” for their electricity, regardless of the price in the short-term energy markets. If the market price is higher than the CfD strike price, the additional revenue received by the generator should be distributed to end-use electricity consumers, the EU draft document states.
PPAs: long-term power purchase agreements
Countries should also make it easier for electricity buyers to sign power purchase agreements (PPAs) – another type of long-term contract to buy electricity directly from a generator.
Fixed price electricity contracts to avoid volatile price fluctuations
If European energy prices were to rise to extreme levels again, the commission also suggested allowing national governments to temporarily intervene to fix prices and offer consumers and small businesses a share of their electricity at a lower price.
This proposal is intended to provide a stable revenue stream for investors and help make consumers’ energy bills less volatile. In addition, it aims to accelerate the move away from fossil fuels in Europe.
