How radical does the European energy market need to be overhauled after the gigantic price shocks of the past year? Only recently, the most far-reaching proposals for government intervention in energy prices were discussed in Brussels. But now that the crisis has subsided somewhat, the enthusiasm for far-reaching reforms also seems to have diminished considerably.
A major reform of the electricity market will therefore not take place, if it is up to the European Commission. This Tuesday, European Commissioner Kadri Simson (Energy) presented long-awaited proposals for the future of that market. So far, said Simson, it has been “too focused on the short term,” which has “amplified the effects of the rise in gas prices and hit consumers hard.” The plans are intended as a response to the energy crisis, but will almost certainly be judged as insufficient by some Member States.
The EU announces radical intervention in the energy market, measures that seemed impossible until recently
The most important thing is that Brussels wants to encourage contracts that establish a stable electricity price in the long term. If an EU government wants to provide financial support to a renewable energy project, for example a new wind farm, in the future, it must immediately make agreements about the price of the electricity that will be supplied. Such a so-called contract for difference the supplier guarantees cost-covering revenues at a low market price. But if the market price is high, consumers are protected against it.
Right to more contracts
European consumers need to be protected in more ways. This gives them the right to request a fixed-price contract from major electricity suppliers. They must also be able to conclude several energy contracts at the same time: one with a fixed price for fixed use and one for variable use with a dynamic price, for example to charge an electric car during off-peak hours. EU governments must avoid disconnecting vulnerable consumers, including by designating a backup supplier to provide electricity if other suppliers fail.
Small and medium-sized enterprises will also receive better protection. For example, EU governments must issue guarantees that make it possible for more companies to make price agreements about electricity with electricity suppliers. In a crisis situation, it should again be possible for EU governments to set an energy ceiling for consumers and companies – as happened last year in many places in Europe, including the Netherlands. Brussels also wants to reduce the risk of supplier bankruptcy: they must build up larger buffers so that they are less sensitive to market fluctuations.
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The proposals should prevent the crazy price spikes of the past year. These were a result of the sky-high gas prices, partly because EU countries started to bid heavily against each other on the market. The electricity price is often determined by the price required to generate electricity with gas. Certainly at peak times, such gas-fired power stations are still necessary for the power supply, which means that the price for all electricity, including green electricity, often shot up sharply in the past year.
It fueled loud calls for radical reform of the system last year. Many countries, especially in Southern Europe, argued for the ‘decoupling’ of electricity and gas prices. For example, Spain, which has a lot of sustainable electricity, but was still confronted with high prices due to the gas connection. On the other hand, countries such as the Netherlands and Germany believe that the current system works well in principle and are afraid of the undesirable consequences of tampering with the market. In Brussels, there has been a lot of bickering in recent months about how radical the reform should be.
Grumbled in Southern Europe
Now it is clear: the softliners have largely won the argument. There will not be a major reform (at the moment) – which could lead to grumbling in southern Europe in the near future. At the same time, the Commission proposes greater government involvement in the market – without, according to criticism from experts, having carried out a full analysis of the possible impact. The guarantees that EU governments must issue on electricity contracts, for example, could become expensive and, due to varying financial possibilities, could also cause inequality within Europe.
Ultimately, Member States and the European Parliament still have to pronounce on these proposals. Samson emphasized that she hopes that process will move quickly, and could be completed before winter.