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New concept for EU electricity market

On 14 March 2023, the European Commission proposed a reform of the EU electricity market, with the aim of reducing price volatility for consumers and creating favourable conditions for investors in low-carbon energy. The reform includes two legislative proposals – one on electricity market design (EMD) and the other on protection against wholesale energy market manipulation (REMIT). The reform aims to improve market monitoring and transparency, and protection against manipulation. The European Parliament voted on both files during its September 2023 plenary session. The Council reached a general approach on REMIT in June 2023 and on EMD in October 2023.

Long-term plan

The reform aims to steady long-term electricity markets by boosting the market for power purchase agreements (PPAs). Member states would promote uptake of PPAs, 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 Council agreed that two-way contracts for difference would be the mandatory model used when public funding is involved in long-term contracts, with some exceptions. Two-way contracts for difference are long-term contracts concluded by public entities to support investments, which top up the market price when it is low and ask the generator to pay back an amount when the market price is higher than a certain limit, in order to prevent excessive windfall profits. These contracts will apply after a transition period of three years.

The Council added flexibility as to how revenues generated by the state through two-way contracts for difference would be redistributed. Revenues would be redistributed to final customers and they may also be used to finance the costs of the direct price support schemes or investments to reduce electricity costs for final customers.

EMD aims to strengthen consumer protection

The Council introduced clarifications to the provisions on customer protection by establishing a free choice of a supplier and the possibility of accessing dynamic electricity prices, fixed-term, and fixed-price contracts unless suppliers do not offer fixed contracts and provided that this does not reduce the overall availability of fixed contracts. The Council agreed to protect vulnerable customers from disconnections by putting in place ‘supplier of last resort’ systems to ensure the continuity of supply at least for household customers, if such systems do not already exist. 

It was also agreed that all customers would have the right to energy-sharing schemes (using, sharing and storing self-generated energy) and that all consumer rights would be extended to final customers involved in energy-sharing schemes.

REMIT addresses third-country market participants

REMIT lays down the framework for monitoring wholesale energy markets and prohibits abuses such as insider trading and market manipulation. One of the proposed amendments to REMIT is that it would require third-country market participants to “declare an office” in a Member State in which they are active and register with the national regulatory authority of that Member State. The Commission’s REMIT Proposal notes that the energy crisis highlighted inadequacies in the existing market design, including the need for more robust monitoring to better protect against market abuse.