European Council agrees stance on electricity market reform

The European Council said the reform aims to "make electricity prices less dependent on volatile fossil fuel prices, shield consumers from price spikes, accelerate the deployment of renewable energies and improve consumer protection". The proposal is part of a wider reform of the EU's electricity market design which also includes a regulation focused on improving the EU's protection against market manipulation through better monitoring and transparency.

"The reform aims to steady long-term electricity markets by boosting the market for power purchase agreements (PPAs) generalising two-way contracts for difference (CfDs) and improving the liquidity of the forward market," the European Council said. "The Council agreed that member states would promote uptake of power purchase agreements by removing unjustified barriers and disproportionate or discriminatory procedures or charges. Measures may include among other things, state-backed guarantee schemes at market prices, private guarantees, or facilities pooling demand for PPAs."

The European Council - which is made up of representatives of the governments of EU member states - agreed that two-way CfDs would be the mandatory model used when public funding is involved in long-term contracts, with some exceptions. They would apply to investments in new power-generating facilities based on wind energy, solar energy, geothermal energy, hydropower without reservoir and nuclear energy.

The Council also agreed to remove the temporary nature of capacity mechanisms, support measures that member states can introduce to remunerate power plants in order to guarantee medium and long-term security of electricity supply.

The European Commission adopted the proposals on the reform of the EU's electricity market design on 14 March. However, a dispute between France and Germany over the role of nuclear power in European climate action has dominated negotiations for months.

Under the terms of the agreement, France will now be able to finance the extension of the operation of its existing fleet of reactors with two-way CFDs, in line with the Commission's initial proposal.

Currently, under the so-called Regulated Access to Incumbent Nuclear Electricity (Accès Régulé à l’Electricité Nucléaire Historique, ARENH) mechanism set up to foster competition, rival energy suppliers can buy electricity produced by EDF's nuclear power plants located in France that were commissioned before 8 December 2010. Under such contracts, between July 2011 and December 2025, suppliers can buy up to 100 TWh - or about 25% of EDF's annual nuclear output - at a fixed price of EUR42 (USD47) per MWh. EDF operates 57 reactors in France, with a total capacity of 62.3 GWe, which together provide about 75% of the country's electricity.

Under the agreement reached by the European Council, the ARENH mechanism - which has attributed to lost earnings for EDF - could be replaced by CfDs when it expires at the end of 2025.

The Council's agreement will serve now as a mandate for negotiations with the European Parliament on the final shape of the legislation. The outcome of the negotiations will have to be formally adopted by the Council and the Parliament.