EC Electricity Market Design Reform

On Dec. 14, EC welcomed deal for reform of electricity market design.

  • EC welcomed provisional agreement by EP, EU CNCL on EU electricity market reform.
  • Follows EP Jun. 2023 backed electricity market reform, see #179854.
  • Follows EU CNCL Oct. 2023 agreement on electricity market design, see #188302.
  • Overview
  • Deal will help EU build a renewables-based energy system, lower energy bills, better protect consumers from price spikes and empower them to benefit from the transition.
  • It will ensure sustainable, independent energy supply to the EU, in line with European Green Deal and REPowerEU Plan; reform will also make European industry cleaner and more competitive thanks to better access to affordable renewable, non-fossil energy.
  • Provisionally agreed reform features revisions to several pieces of EU legislation.
  • Including the electricity regulation, electricity directive, and the REMIT regulation.
  • Building on lessons of the energy crisis spurred by Russia's invasion of Ukraine, agreed reform will bring more price stability to consumers, suppliers due to broader use of long-term contracts for clean power production; the reform will also bring more non-fossil flexible solutions into the system, e.g. demand response and storage.
  • Consumer Benefits
  • Consumers will get wider choice of contracts, clearer information before signing contracts, with option to lock in secure, long-term prices to avoid excessive risks.
  • They will still be able to choose to have dynamic pricing contracts to take advantage of price variability to use electricity when it is cheaper, e.g. to charge electric cars.
  • Deal reduces the risk of supplier failure and strengthens consumer protection.
  • Suppliers will be required to manage their price risks at least to the extent of the volumes under fixed contracts, to be less exposed to price spikes and market volatility.
  • Member States will have to establish suppliers of last resort so no consumer ends up without electricity; disconnection protection for vulnerable consumers, energy poor.
  • Member States will be able to extend regulated retail prices to households and SMEs in case of a crisis; EC will be able to propose to EU CNCL to declare an electricity price crisis in case there is a sharp increase in retail prices, allowing the Member States to take further measures to protect customers and ensure access to affordable energy.
  • Provisionally agreed reform allows consumers, including businesses, public authorities, to play active role in energy system; prosumers participating in energy sharing can invest in wind/solar parks, sell excess rooftop solar electricity to neighbors, supplier.
  • Tenants could share surplus rooftop solar power with a neighbor; member States could facilitate renewable energy deployment by consumers via plug-in mini solar systems.
  • Energy Market Integrity, Transparency
  • To ensure EU consumers will benefit from competitive markets with transparent price-setting, EU ACER, national regulators will have more ability to monitor energy market integrity and transparency; ACER will be able to investigate potential market abuse cases of cross border nature, cases where conduct affects at least 2 member states.
  • To conduct its investigations, ACER will be able to conduct on-site inspections, issue requests for information, take statements; and under revised REMIT, market participants from third countries must designate a representative in a member State in which the market participants are active in the wholesale energy market.
  • Competitive Industry
  • The provisional reform will facilitate deployment of more stable long-term contracts.
  • Through these, companies can establish own direct supplies of energy and thereby can profit from more stable prices of renewable and low-carbon power production.
  • Member States will be obliged to ensure availability of market-based guarantees for Power Purchase Agreements (PPAs), to help enhance competitiveness of EU industry.
  • It would do this by reducing its exposure to volatile prices related to fossil fuels.
  • In addition, reform will boost liquidity of markets for long term contracts that lock in future prices, so-called forward contracts, allowing more suppliers and consumers to protect themselves against excessively volatile prices over longer periods of time.
  • To provide power producers with revenue stability. shield industry from price volatility, under the deal all public support for investment in new production capacity in infra-marginal, must-run renewable and low-carbon electricity generation will have to be in form of two-way Contracts for Difference (CfDs) or equivalent with the same effects.
  • Member States encouraged to channel excess revenues to consumers, either directly or by financing the costs of price support or investments to reduce electricity costs.
  • Future Energy System
  • New electricity market design will facilitate integration of renewables into the system, enhance predictability for electricity generation through new transparency obligations for system operators as regards grid congestion, trading deadlines closer to real time.
  • To improve power system flexibility, member States will be required to assess needs, establish objectives to increase non-fossil flexibility, and will have the possibility to introduce new support schemes especially for demand response and storage.
  • The reform also enables system operators to procure demand reduction at peak hours.
  • Next Steps
  • Provisional agreement requires formal adoption by both EP and the EU CNCL.
  • Dec. 25, 2023 Final Compromise Text
  • On Dec. 25, 2023, EU CNCL issued note attaching analysis of final compromise text.
  • Coreper invited to confirm the agreement on the final compromise texts as set out in the Annexes to the note, in view of reaching an agreement at first reading with EP.
  • And authorize the Presidency to inform EP that, should the EP adopt its positions at first reading, in the form set out in the texts contained in the Annexes to the note, the Council will approve the EP’s positions at first reading and the acts shall be adopted.
  • Mar. 2024 EP Report
  • On Mar. 25, 2024, EP ITRE issued final report on proposal for a directive of European Parliament and of Council amending EU directives 2018/2001 and 2019/944.
  • Apr. 11, 2024 EP Approves Reforms
  • On Apr. 11, 2024, EP said Parliament had adopted electricity market reform, to guard against price volatility, protect vulnerable customers from their supply being cut off.
  • Confirmed CfDs to encourage investment, ability to declare regional/EU price crises.
  • Published resolutions on proposals for a regulation and directive on improving design.
  • Following this approval, EU CNCL must formally adopt the legislation to become law.
  • Apr. 22, 2024 Outcome of EP First Reading
  • On Apr. 22, 2024, EU CNCL issued information notes, dated Apr. 19, 2024, on the outcome of the EP's first reading position on the proposal for a regulation.
  • When it voted on Apr. 11, 2024, the plenary adopted the compromise amendment (amendment number 2) to the abovementioned proposal for a regulation.
  • No other amendments were adopted; EC's proposal as thus amended constitutes the EP's first-reading position which is contained in the resolution set out in Annex to note.
  • The EP's position reflects what had been previously agreed between the institutions.
  • The Council should therefore be in a position to approve the Parliament's position.
  • The act would then be adopted in the wording which corresponds to the EP's position.
  • May 2024 Final Texts for Adoption
  • On May 7, 2024, EU CNCL issued final text of the directive (PE-CONS 2/24) and regulation (PE-CONS 1/24) on electricity market design for adoption.
  • May 13, 2024 Proposed Adoption
  • On May 13, 2024, EU CNCL issued item notes concerning proposed adoption of acts.
  • Coreper asked to confirm its agreement and to suggest that the Council approve the EP positions, as set out in PE-CONS 1/24 and PE-CONS 2/24, as "A" items at meeting.
  • If Council approves European Parliament's positions, legislative acts will be adopted.
  • May 21, 2024 Adoption
  • On May 21, 2024, EU CNCL formally adopted regulation on electricity market reform.
  • Includes power purchase agreements (PPAs), two-way contracts for difference (CfDs).
  • CfDs can apply to investment in new power-generating facilities based on wind energy, solar energy, geothermal energy, hydropower without reservoir and nuclear energy.
  • Amends current electricity regulation, also with targeted changes to EU ACER rules.
  • EC welcomed adoption and commitment to clean energy, supply security, consumer protection, building on energy crisis lessons, and published a Q&A on the revisions.
  • Electricity market regulation will now be signed and published in Official Journal of EU.
  • Will enter into force 20th day after publication and directly apply to all member states.
  • Provisions on amending current electricity directive and renewables directive are split from proposed regulation as a self-standing directive, and adopted on same day.
  • Member states will have up to 6 months to adapt national legislation to the directive.
  • In May 2024, EU ACER said it will review power purchase agreements, see #213323.
  • Jun. 18, 2024 Final Adopted Texts
  • On Jun. 18, 2024, EU CNCL issued the final adopted texts, dated Jun. 13, 2024, of the regulation and directive.
  • Jun. 26, 2024 Official Journal
  • On Jun. 26, 2024, EU CNCL issued final Reg 2024/1747 and final Dir 2024/1711 in OJ.
  • Member States shall bring into force the laws, regulations and administrative provisions necessary to comply with directive by Jan. 17, 2025, subject to the below.
  • Member States shall bring into force the laws, regulations and administrative provisions necessary to comply with Article 2, points (2) and (5), by Jul. 17, 2026.
  • Directive and regulation enter into force on 20th day after publication, Jul. 16, 2024.
  • In Aug. 2024, EC sought views on forward capacity allocation guideline, see #222507.

Regulators EP; EU CMSN; EU CNCL
Entity Types CNSM; Corp
Reference OJ L, 6/26/2024; PR, 6/18/2024; PR, Dir 2024/1711, Reg 2024/1747, PE-CONS 1/1/24 REV 1, PE-CONS 2/1/24 REV 1, 6/13/2024; FAQ QANDA/24/2260, PR IP/24/2261, 5/21/2024; PR, 9643/24, 9644/24, 5/13/2024; PE-CONS 1/24, PE-CONS 2/24, 5/7/2024; PR, 4/22/2024; PR, 8720/24, 8756/24, 4/19/2024; PR 20240408IPR20316, Res P9_TA(2024)0285, Res P9_TA(2024)0284, 4/11/2024; PR, 3/25/2024; Rp, A9-0151/2024, 3/22/2024; PR, 12/25/2023; PR, 16964/23, 12/19/2023; PR 20231211IPR15805, 12/14/2023; 2023/0077(COD); COM(2023)0148; 2023/0077B(COD); Dir 2018/2001; Dir 2019/944; Reg 2019/943; REMIT Reg 1227/2011; ESG; Citation: PE-CONS 1/24; PE-CONS 2/24; Reg 2024/1747; Dir 2024/1711;
Functions Compliance; Financial; Legal; Operations; Treasury
Countries European Union
Category
State
Products Commodities; Corporate
Regions EMEA
Rule Type Final
Rule Date 12/14/2023
Effective Date 1/17/2025
Rule Id 194855
Linked to Rule :188302
Reg. Last Update 6/26/2024
Report Section EU

Last substantive update on 06/28/2024