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EU Parliament adopts reform of the EU electricity market

Energy prices have been rising since mid-2021, initially in the context of the post-COVID-19 economic recovery. Energy prices rose steeply due to gas supply problems since they are linked together under the merit order system, where the most expensive (usually fossil fuel-based) energy source sets the overall electricity price. In light of these, the European Parliament (EP) voted on 11 April 2024 in favour of legislation to reform the EU's electricity market.

According to the EP, the legislation will protect consumers from price volatility, ensure access to fixed-price or dynamic-price contracts and provide them with important information. It also stipulates that service providers cannot unilaterally change contract terms. Under the legislation, EU countries can prohibit suppliers from interrupting the electricity supply to vulnerable customers, including in the event of disputes between suppliers and customers.

The legislation makes provision for so-called contracts for differences or equivalent schemes to encourage energy investment. Under margin contracts, the authority compensates the energy producer if market prices fall too steeply, but can claim payments if prices are too high. The use of margin contracts will be allowed for all new electricity generation investments, whether from renewable or nuclear energy. The legislation sets out a mechanism for declaring an electricity crisis: in the event of very high prices and under certain conditions, the EU can declare a regional or EU-wide electricity crisis, allowing Member States to take temporary measures to set electricity prices for small and medium-sized enterprises and energy-intensive industrial consumers.

After approval by the EP, the Council, which brings together national governments, must also approve the legislation for it to become law.