After months of challenging negotiations, EU member states have gone on to reach an agreement on October 17 regarding the reform when it comes to the bloc’s electricity market. The implementation of long-term contracts, specifically contracts for difference (CfDs), is expected to add stability to consumer prices and also provide investors in the new generation with a sense of assurance.
The primary concern is how the state support offered by CfDs could potentially create a disadvantage for nuclear and coal. France and Germany took opposing sides in the argument, but they are currently at a compromise regarding the level of support for nuclear power. The deal will now be taken to the EU Parliament for further negotiations. This procedure is expected to bring nuclear as well as coal into focus once again.
France and Germany assert that the deal reached by EU states to reform the bloc’s electricity market is a result of their respective national efforts to strike a compromise and also control each other’s demands when it comes to the energy sector. After months of heated discussions surrounding the reform of the power market’s layout, the EU energy council has finally reached an agreement. The agreement aims to protect electricity prices from a possible rise in the cost of fossil fuels, with an emphasis on natural gas. The agreement also addressed the issue of nuclear power, which had been an important point of discord between Berlin and Paris because of their fundamentally different opinions on the future of this technology.
Settle on an average electricity bill over the rising fossil fuel cost
In a conversation with radio station France Info, France’s energy minister, Agnes Pannier-Runacher, conveyed her optimism about the beneficial effect of this news on the power bills of French citizens. At their meeting in Luxembourg, EU energy ministers concurred on a reform that will ensure European customers contribute the average production price for electricity.
This means that they will no longer have to bear the burden of price swings in fossil fuel markets.
Germany’s energy minister, Robert Habeck, expressed that the agreement shows Europe’s capacity to take action promptly on important problems that affect its citizens directly. He emphasised the importance of ensuring cost-effective electricity prices across households as well as industries. According to a statement from the ministry, customers can now enjoy the benefits of the inexpensive production of non-fossil energy sources.
Spain’s ecological transition minister, Teresa Ribera, expressed that achieving a deal like this would have been impossible just a few years ago. She stated that the reform will have multiple benefits, including financial advantages for consumers and the promotion of the growth of clean energy sources.
Gas-fired power plants will no longer decide market rates for electricity
The detrimental effects of the current system became evident during the energy crisis in 2022. The significant increase in the price of natural gas resulted in a related surge in overall power costs. This was primarily caused by gas-fired power plants establishing market rates for electricity.
The European Commission’s proposed reform, introduced in the spring of 2023, includes the implementation of long-term contracts. These contracts, known as contracts for difference- CfDs, aim to limit the impact of market disruptions, such as those caused by Russia’s war on Ukraine.
When market prices exceed production costs, it is necessary for producers to transfer the extra revenue to the state. The state will then use these funds to offer relief to customers. If the prices are lower, the state will provide compensation to the producers. According to Pannier-Runacher, while the petrol price may increase, it will only contribute little to the overall bill.
The role of nuclear power
The new agreement also addresses the role of nuclear power in Europe’s energy system. The French energy minister praised this development as an achievement, especially considering Germany’s previous hesitation in acknowledging nuclear power as an important tool in the EU’s efforts to combat climate change. Pannier-Runacher made the case that nuclear power, which is France’s biggest electricity source, emerged as a significant beneficiary of the deal. She stated that with this deal, they have ensured the funding for future nuclear power capacity as well as the existing plants and their extension of operation, and also added that investors can now be assured that the government will provide predictable returns. Simultaneously, the minister emphasised that the agreement would not neglect the growth of renewables in France.
Both France and Germany have constantly emphasised their efforts to protect European companies from the effects of high energy prices. They aim to enhance the competitiveness of these companies in contrast to industrial rivals such as China or the U.S., who get significant support via multiple schemes. Shortly before the EU energy council meeting, French President Emmanuel Macron as well as German Chancellor Olaf Scholz made an offer to reach an agreement on a reform, in spite of the challenges presented by the nuclear dispute.
The German government has repeatedly opposed the inclusion of nuclear power in the reform. They have cited untouched technical and environmental issues linked to the technology. Additionally, they have voiced concerns that the French government might employ nuclear power to address funding issues related to their nuclear power goals. The German government also worries that state support for nuclear power could unfairly benefit the French national industry. In Germany, where power production relies heavily on gas-fired plants, the changes were primarily aimed at providing assurance to investors in solar and wind energy installations.
EDF, the state-owned French energy company responsible for operating the country’s nuclear fleet, is at present obligated to supply electricity at a price reduction set by a state commission. However, this system is set to expire in 2025. France is going to use the funds generated from the new CfD scheme to support its nuclear fleet, which experienced unexpected downtime in 2022. The objective is to ensure the efficient operation of existing reactors by allocating the revenue accordingly. Germany rejected the idea and insisted that only new construction should be financed through the scheme. Habeck stated that Germany had successfully promoted fair competition on Europe’s power market during the negotiations.
According to Michael Bloss, who happens to be a member of the EU Parliament for the German Green Party, the agreement reached by the states involves funding current installations through proceeds from CfDs. This funding can be used for renovation, execution extensions, or capacity increases. However, Bloss maintained that the deal is still a much-needed achievement that would open the way for additional discussions in parliament. He added that the Council cannot proceed without the parliament and emphasised the importance of prioritising the expansion of renewable energy sources and protecting consumers against increases in costs. He argued that new aid for coal or special treatment of nuclear power is not a choice and opined that the proposed method of freeing nuclear plants from market exposure would prove inefficient and not in line with European standards.