Brussels plans to overhaul the bloc’s electricity market to prioritize cheaper renewable power, the EU energy commission said, despite industry warnings that the reform could stifle investment in wind and solar farms.
Kadri Simson said the European Commission is under “very strong political pressure” to redesign the market to cut bills for consumers as the EU battles its most challenging energy crisis in decades.
“We work in extraordinary conditions and deliver [the reforms] faster than the commission usually does,” he said in an interview.
Simson said the commission is studying how to bring “greater renewable benefits” to consumers. “We also need gas-fired power plants, but we don’t want to build a system that will run 24/7,” he said.
In a draft document outlining possible reforms, seen by the Financial Times, the commission recommended that renewable energy better reflect the “true cost of production”, because once the infrastructure is built, the source of energy for wind farms or solar arrays is true. free.
It also proposes extending the windfall tax on renewable energy companies, the results of which are passed on to consumers and will expire in 2023.
The proposal to increase the bloc’s electricity market follows months of pressure from several member states, notably France and Spain, who asked the commission to end a system in which the bloc’s most expensive fuel – currently gas – sets the price of all power. when.
The model, known as the “order of merit”, prioritizes renewable and nuclear power to meet electricity needs first, followed by gas and coal. The price is set by the last generator called to meet demand, meaning that the price of renewable energy is often linked to the cost of fossil fuels.
This has boosted investment in renewable energy, which has benefited from higher gas costs, but means consumers have to pay the price of renewables even though production costs are lower.
European Union politicians say record increases in European gas prices last year and a raft of clean energy projects have crippled the system.
The bloc faces ongoing difficulties in 2023. The International Energy Agency has warned that the reduction of pipeline gas from Russia risks leaving the European Union with a shortage of 30bn cubic meters of fuel – about 7 percent of 2021 consumption – during the year.
Renewable energy will account for about two-fifths of Europe’s electricity production in 2020, with 36 percent from fossil fuels and 25 percent from nuclear, according to European Commission data.
France, the largest producer of nuclear power in the European Union, and Spain, which produces almost half of its energy from renewable energy, have been the most vocal proponents of gas decoupling and renewable pricing.
Industry executives say Brussels’ proposals will undermine long-term contracts such as power purchase agreements (PPAs). This is based on the average price over the contract period and ensures the developer gets a return on investment.
“Talking about working on the electricity market to push the boundaries is the wrong way to think at a critical time,” said Ulrik Stridbæk, head of regulatory affairs at Ørsted, a Danish energy company.
Nick Keramidas, director of regulatory affairs at Greek metallurgical company Mytilineos, said: “This PPA could be worth hundreds of millions of euros because it could last 10 or 15 years. [When making investments] you have to make sure that the market base will . . . doesn’t change.”
Christian Zinglersen, head of EU energy regulator ACER, said long-term changes should provide “the right investment signal for all the new buildings needed to carry out a fast and ambitious energy transition”.
Brussels has said it will start consultations on possible reforms, and publish a full proposal by the end of March.
The wind tax is one of the emergency measures taken by the European Union last year to ease the energy crisis. The EU has asked member states to reduce gas consumption by around 15 percent and has approved a temporary windfall tax for oil and gas companies.
A cap on wholesale gas prices, to prevent the rise again to August record high € 300 per megawatt hour, was signed off by the minister in December.
Norway, which replaced Russia as the biggest gas exporter to the EU after a full-scale invasion of Ukraine in February, has criticized the bloc for potentially exacerbating supply problems.
“The price cap does not solve the fundamental problem that there is a shortage of energy in the European market. Placing a price ceiling, there is a risk that the situation will get worse,” said Amund Vik, state secretary in the ministry of oil and energy.
Simson defended the cap, saying Brussels would not propose it “unless we believe we have to do something so European consumers can avoid this. [high prices]”.
He also argued that a corruption scandal involving alleged bribery between Qatar and European lawmakers would affect the bloc’s energy contracts with Gulf states. Qatar is focusing on regasification terminals due to come online in Germany in 2025, which are not affected by the case, he said.
Simson admitted that it was “not a good idea” to implement major energy legislation in the midst of a crisis. But, he said, “This is something that will define our power grid for decades. And . . . we can’t treat it as an emergency measure.