2023-10-18 17:14:28
The twenty-seven countries of the European Union IIreached an agreement this Tuesday to reform the electrical market. After an intense day of meetings, and after the warning of the third vice president and minister for the Ecological Transition, Teresa Ribera, at the head of the Spanish presidency of the EU, that he would not go to sleep without an agreement, the pact was announced in mid-afternoon. The reform, born in the heat of the energy crisisarose due to the urgency of reducing the dependence on fossil fuels, such as gas, on electricity prices.
1. When does it start?
First of all, the negotiation on electrical market it is not yet finished. The agreement between the countries was born after the March proposal of the European Commission on the reform of the electricity market and now aims to serve as mandate for the negotiation with the European Parliament, that starts this same Thursday. It is what is known in European jargon as the ‘trilogues’ in which it will be about fine tune even more text to give final form to the legislation. Both the presidency of the European Union and the European Commission aspire to reach an agreement before the end of the year because once there is agreement on the text, for it to become legislation of the European Union, the new rules must be approved by both the Council and the European Parliament. In mid-2024 there will be elections in Brussels, so any delay in timing could ruin the entire process.
2. Will prices go down?
The attempt at reform arose from the energy crisis of the last two years to try delink the price of fossil fuels, like gas, in the price of electricity. But its objective is not so much lower the pricesino avoid volatility and encourage entry of renewables in electrical systems. The heart of the proposals (from Parliament, the Commission and the Council) is to promote the forward market, which guarantees more stable prices, through two formulas: facilitating private power purchase agreements between consumers and generators (known as ppa, for the acronym in English of ‘power purchaise agreement’), for example, through State guarantee systems, and establishing as a model of public financing the so-called contracts for differences. This concept refers to a model of long-term contracts entered into by the Government to support investments in electricity generation, which complement the market price when it is low and ask the generator to return an amount when the market price is higher than a certain limit, in order to avoid excessive profits for the generators. In this way, if prices are high, as happened in the energy crisis, the different governments receive income that they can then redistribute to reduce the impact on consumers’ pockets.
3. Will it be noted on the invoice?
Beyond this attempt to favor the forward market, in the Spanish case The impact seems limited in the short and medium term. The approach of the Ministry for the Ecological Transition that directs Teresa Ribera Initially, it involved forcing existing plants – hydraulic and nuclear – to leave the daily market to establish contracts for differences with them (regulated fixed prices) as a way to contain prices by avoiding extraordinary income from these technologies. But finally the formula adopted will be voluntary, thus its impact is blurred. Furthermore, Spain placed special emphasis on facilitating capacity markets – which serve to reward technologies for being available, as a guarantee of supply – through a accelerated mechanism that would reduce the impact of gas on the daily market, and although the proposal advances along this line, it does not fully promote it.
4. Are there no more changes?
The Council agreement – which has not yet been published in its entirety – also includes greater “consumer protection” by echoing measures proposed by the European Commission such as the obligation for electrical companies offer fixed price rates or the right of consumers to share surplus energy with their neighbors without the need to create energy communities, which could encourage self-consumption.
5. Will it prevent a crisis from happening again?
What is done is to reinforce the role of the Council when declaring a temporary price crisis at regional or Union level and modify the conditions to declare it, from when the Governments will be able to adopt extraordinary measures to mitigate the impact of high prices. Thus, a price crisis is defined when the wholesale electricity market has “very high” prices that last at least six months and the strong increases in retail prices are expected to continue for at least three months.
6. Any quick impact measures?
The most immediate is that the Council agrees that Member States can apply a ceiling to the extraordinary income of the producers with the lowest marginal costs – hydraulic and nuclear, mainly up to the June 30, 2024, under the same conditions as the current emergency measure. In the case of Spain, this is the limit of 67 euros per megawatt-hour on the sale of energy from these technologies which, in principle, is in force until the end of this year. The large electricity companies, which are the main affected, have been demanding its elimination for months. This measure has served to contain the price of rates in the free market during the worst months of the crisis.
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