popular articles

Reform of the European Electricity Market

Deciphering the reform of the European electricity market and its impact on the energy transition.
Conseil de l'Europe

Please share:

A reform of the European electricity market is being discussed by the EU-27, against a backdrop of bitter nuclear talks between Paris and Berlin. This is a crucial piece of legislation for the energy transition, which is now being negotiated between the Member States and MEPs with a view to its finalization. Here are the key points:

Long-term contracts for lower bills

Wholesale electricity prices depend on the cost of the last power plant used to balance the grid. Moreover, last year the market soared in unison with gas prices. Without structurally altering the way the wholesale market operates, the European Commission is proposing a reform. It intends to develop long-term electricity purchase contracts at a pre-determined price (PPA) to smooth out the impact of volatile gas prices on bills.

Governments will be responsible for encouraging this, for example by setting up public guarantee schemes to cover the credit risks of buyers, especially businesses. The text also aims to ensure that retail electricity suppliers have appropriate hedging, potentially by requiring the use of PPAs, to reduce their exposure to wholesale market volatility. Consumer protection would be strengthened, particularly for vulnerable customers.

Supporting investment in decarbonized energies

After a transitional period of three years, the EU-27 agreement makes it compulsory to use “contracts for difference” (CFD) at a price guaranteed by the State for all public support for investment in new decarbonized power plants (renewable and nuclear). Under this mechanism, if the price on the wholesale market falls below the set price (which takes into account the average cost of production plus a margin), the State pays compensation to the electricity producer. But if the price is higher than the guaranteed price, the producer must pay the additional income to the State, which can then redistribute it to consumers (industry, households, etc.) or reinvest it. Their aim is to encourage the development of low-carbon energy projects. Then to guarantee greater predictability for investors and electricity producers alike.

Existing nuclear power plants

This was the most hotly debated point, both in Parliament and between the States. Brussels proposed that the use of CFDs should also apply to investments designed to extend the life of existing power plants. Or to increase their capacity (here again, only decarbonized energies are concerned). It is essential for France, which wants to finance the refurbishment of its aging nuclear fleet. In addition, it can maintain low prices for households and industry, reflecting the production costs of the atom. Berlin, on the other hand, feared an unfair competitive advantage. He was alarmed at the massive revenues redistributed to French manufacturers, and demanded drastic safeguards.

Finally, the agreement of the Twenty-Seven provides for CFDs to be possible. However, they are not mandatory for public support for investments in existing power plants. Brussels should therefore check these CFDs and their prices to ensure that they are set up in such a way as to “participate effectively in electricity markets”. All this without “distorting competition”. At the same time, we need to ensure that the redistribution of revenues generated “does not distort conditions of competition” within the EU.

Reserve capacities: the case of coal

Another topic of debate: “capacity mechanisms”. They enable governments to pay for unused power plant capacity. This is to ensure that they remain in operation and avoid future power shortages. Several countries wanted to be exempted from the planned environmental constraints (CO2 emission limits). Poland, for example, is keen to apply this tool to its coal-fired power plants. The EU-27 agreement provides for a conditional derogation until 2029. A potential “coal subsidy” deemed unacceptable by Green MEP Michael Bloss, one of the Parliament’s negotiators.

Crisis situations

The text lays down the conditions (sharp rises in wholesale and retail prices) for triggering a crisis situation at European level, paving the way for price control measures (such as tariff shields) by the Member States. But if the MEPs agree to leave it up to Brussels to decree such a crisis, the Member States want to keep the upper hand by taking decisions by qualified majority. The possibility of using other measures, such as capping electricity producers’ revenues, is also being debated.

All in all, this reform of the European electricity market is a crucial step towards energy transition. It aims to guarantee a stable supply of energy, favoring low-carbon energies and protecting consumers. The compromise between the Twenty-Seven reflects divergent interests, but Europe is moving towards a more sustainable energy future.

 

Register free of charge for uninterrupted access.

Publicite

Recently published in

Starting July 2025, a European label will allow passengers to compare CO2 emissions from flights, aiming to promote less polluting options.
The UK electricity grid operator, National Grid, announces an ambitious £35 billion plan to double electricity transmission capacity by 2031, in alignment with the government's environmental goals.
The UK electricity grid operator, National Grid, announces an ambitious £35 billion plan to double electricity transmission capacity by 2031, in alignment with the government's environmental goals.
Nigeria approves Shell's $2.4 billion sale of 30% onshore assets
Nigeria approves Shell's $2.4 billion sale of 30% onshore assets
The Department of Energy grants a conditional $15 billion loan to PG&E to modernize California's infrastructure. This project is part of a larger effort to transform regional energy policy.
The Department of Energy grants a conditional $15 billion loan to PG&E to modernize California's infrastructure. This project is part of a larger effort to transform regional energy policy.
Germany’s energy policy, marked by the nuclear phase-out, has driven electricity prices up in Sweden, affecting households and businesses. Stockholm accuses Berlin of neglecting regional impacts and suspends a key interconnection project.
The Court of Audit reveals €200 billion in investment needs to modernize French electrical grids by 2040, urging a balance between shareholder and consumer financial efforts.
The Court of Audit reveals €200 billion in investment needs to modernize French electrical grids by 2040, urging a balance between shareholder and consumer financial efforts.
A project supported by the UNDP and the European Union aims to reduce energy losses and modernize Kazakhstan's electric infrastructure, the largest greenhouse gas emitter in Central Asia.
A project supported by the UNDP and the European Union aims to reduce energy losses and modernize Kazakhstan's electric infrastructure, the largest greenhouse gas emitter in Central Asia.
Donald Trump's proposal to impose a 25% tariff on all imports from Canada and Mexico risks disrupting supply chains and increasing costs for American businesses and consumers.
Donald Trump's proposal to impose a 25% tariff on all imports from Canada and Mexico risks disrupting supply chains and increasing costs for American businesses and consumers.
Reforms aimed at accelerating energy permits have been excluded from the U.S. budget bill, postponing discussions to a Republican-led Congress that plans more ambitious changes.
The U.S. Supreme Court reviews the fuel industry’s challenge against California’s exclusive right to impose electric vehicle sales targets, a key issue for national emission standards.
The U.S. Supreme Court reviews the fuel industry’s challenge against California’s exclusive right to impose electric vehicle sales targets, a key issue for national emission standards.
Japan plans to reduce its reliance on thermal energy to 30%-40% by fiscal year 2040-2041 while significantly increasing renewable energy, according to a draft Strategic Energy Plan.
Japan plans to reduce its reliance on thermal energy to 30%-40% by fiscal year 2040-2041 while significantly increasing renewable energy, according to a draft Strategic Energy Plan.
In response to climate pressures, the Biden administration proposes limiting public support for oil and gas projects abroad. An initiative that could redefine global energy policy.
In response to climate pressures, the Biden administration proposes limiting public support for oil and gas projects abroad. An initiative that could redefine global energy policy.
Niger has received a 20 MW diesel power plant as a strategic donation from Morocco. This project aims to strengthen local production in a context marked by high dependency on Nigeria for energy supply.
The Zawiya refinery, essential for fuel supply in Libya, has suspended its activities after armed clashes caused significant fires and sparked a local crisis.
The Zawiya refinery, essential for fuel supply in Libya, has suspended its activities after armed clashes caused significant fires and sparked a local crisis.
Despite corruption charges against Gautam Adani, CEO of the eponymous conglomerate, Sri Lanka confirms the continuation of the strategic Colombo container terminal project, vital for its struggling economy.
Despite corruption charges against Gautam Adani, CEO of the eponymous conglomerate, Sri Lanka confirms the continuation of the strategic Colombo container terminal project, vital for its struggling economy.
Faced with the threat of Russian gas cuts, Moldova is enacting a 60-day state of emergency to safeguard its energy security and prevent a humanitarian crisis during one of the most critical winters for its energy independence.
Faced with the threat of Russian gas cuts, Moldova is enacting a 60-day state of emergency to safeguard its energy security and prevent a humanitarian crisis during one of the most critical winters for its energy independence.
Electricity prices in Estonia fell by 9.6% in November, averaging €82.56/MWh, driven by increased wind energy production and higher-than-average temperatures.
Utah Governor Spencer Cox proposes an ambitious budget to double energy production within ten years, focusing on nuclear and geothermal energy, contrasting with federal priorities on solar energy.
Utah Governor Spencer Cox proposes an ambitious budget to double energy production within ten years, focusing on nuclear and geothermal energy, contrasting with federal priorities on solar energy.
Energy prices in Europe far exceed those in the United States and China, putting the manufacturing industry at a disadvantage. An urgent review of energy and industrial policies is needed to safeguard European competitiveness.
Energy prices in Europe far exceed those in the United States and China, putting the manufacturing industry at a disadvantage. An urgent review of energy and industrial policies is needed to safeguard European competitiveness.
SSE Transmission submits an ambitious plan to Ofgem, aiming for £22 billion in investments to support energy transition, create thousands of jobs, and strengthen Scotland's electricity infrastructure.
SSE Transmission submits an ambitious plan to Ofgem, aiming for £22 billion in investments to support energy transition, create thousands of jobs, and strengthen Scotland's electricity infrastructure.
China accelerates reforms for a unified electricity market, but local trade barriers limit the transmission of renewable energy from remote regions to high-demand urban centers.
The International Monetary Fund announced an agreement with Ecuador on the first review of its economic aid program, paving the way for a $500 million disbursement amid an energy and economic crisis.
The International Monetary Fund announced an agreement with Ecuador on the first review of its economic aid program, paving the way for a $500 million disbursement amid an energy and economic crisis.
The former nuclear leader Areva settles a €4.8 million fine in a corruption case in Mongolia from 2013 to 2017, thus avoiding legal prosecution. An investigation reveals controversial payments through intermediaries.
The former nuclear leader Areva settles a €4.8 million fine in a corruption case in Mongolia from 2013 to 2017, thus avoiding legal prosecution. An investigation reveals controversial payments through intermediaries.
India has called on the International Court of Justice to uphold the current UN climate framework, sparking tensions with small island states advocating for stricter measures.
India has called on the International Court of Justice to uphold the current UN climate framework, sparking tensions with small island states advocating for stricter measures.

Advertising