Today, the Commission proposed to reform the design of the EU’s electricity market to accelerate the expansion of renewables and phase out gas, make consumer bills less dependent on volatile fossil fuel prices, protect better protect consumers from future price increases and possible market manipulation and make EU industry clean and more competitive.

For over twenty years, the EU has had an efficient, well-integrated electricity market, which has allowed consumers to reap the economic benefits of a single energy market, secured energy supply and promoted the decarbonisation process. The energy crisis caused by Russia’s invasion of Ukraine highlighted the need to rapidly adjust the electricity market to better support the green transition and provide energy consumers, both households and businesses, with broad access to affordable electricity from renewable and non-mineral sources.

The proposed reform provides for revisions to various pieces of EU legislation — in particular the Electricity Regulation, the Electricity Directive and the REMIT Regulation. It introduces measures that incentivize long-term contracts for electricity generation from non-fossil sources and introduce more clean flexible solutions to the system to compete with gas, such as demand response and storage. This will reduce the impact of fossil fuels on consumers’ electricity bills and ensure that the lower costs of renewable energy are passed on to them. In addition, the proposed reform will stimulate open and fair competition in European wholesale energy markets, enhancing market transparency and integrity.

Creating an energy system based on renewable energy sources is vital not only to reduce consumer bills, but also to ensure the EU’s sustainable and independent energy supply, in line with the European Green Deal and the REPowerEU plan. This reform, which is also part of the Green Deal industrial plan, will also enable European industry to access affordable renewable, non-fossil energy, which is a key enabler of the decarbonisation and green transition. To meet our energy and climate targets, renewable energy deployment will need to triple by the end of the current decade.

Consumer protection and strengthening of their position

High and volatile prices, such as those recorded in 2022 caused by Russia’s energy war against the EU, have put too much of a burden on consumers. This proposal will allow consumers and suppliers to benefit from increased price stability thanks to renewable and non-fossil energy technologies. Most importantly, it will offer consumers a wide choice of contracts and clearer information before signing a contract, so they can secure safe, long-term prices and avoid excessive risk and excessive volatility. At the same time, they will still be able to choose dynamic pricing contracts to take advantage of price volatility to use electricity when it is cheaper (eg to charge electric cars or use heat pumps).

In addition to expanding consumer choice, the reform further aims to enhance price stability by reducing the risk of supplier defaults. The proposal imposes an obligation on suppliers to manage price risk at least to the extent of fixed price contract quantities, so that they are less exposed to price spikes and market volatility. It also obliges member states to set up suppliers of last resort so that no consumer is left without electricity.

The protection of vulnerable consumers is also significantly strengthened. Under the proposed reform, Member States will protect vulnerable consumers who face payment delays so that they are not disconnected from the electricity grid. It also allows Member States to extend regulated retail prices to households and SMEs in the event of a crisis.

Under the proposal, the rules for sharing renewable energy are also revised. Consumers will be able to invest in wind or solar farms and sell excess rooftop solar electricity to their neighbors rather than just their supplier. For example, tenants will be able to share excess rooftop solar energy with neighbors.

To improve the flexibility of the electricity system, Member States will now be required to assess their needs, set targets for increasing flexibility based on non-fossil sources and will be able to introduce new support schemes, in particular for demand response and storage. The reform also allows system operators to procure peak demand reduction services. Alongside this proposal, the Commission has also today issued recommendations to Member States on promoting innovation, technologies and capacities in the storage sector.

Enhancing the predictability and stability of energy costs will boost industry competitiveness

Over the past year, many businesses have been severely affected by extremely volatile energy prices. To strengthen the competitiveness of EU industry and reduce its exposure to volatile prices, the Commission proposes to facilitate the conclusion of more stable long-term contracts, such as power purchase agreements (PPAs), through which businesses secure their direct energy supplies and can therefore benefit from the more stable prices of electricity generation from renewable and non-fossil sources. To address existing obstacles, such as credit risks faced by buyers, the reform obliges Member States to ensure the availability of market-based guarantees for PPAs.

In order to ensure income stability for electricity producers and to shield the industry from price volatility, any public support for new investment in sub-threshold or mandated renewable and non-fossil power generation should take the form of a two-way contract for difference (CfD) and Member States should pass on the excess revenue to consumers. In addition, the reform will boost liquidity in markets for long-term contracts that lock in future prices, so-called “futures.” This will allow more suppliers and consumers to hedge against highly volatile prices over longer periods of time.

There will also be new obligations to facilitate the integration of renewables into the system and enhance the predictability of electricity generation. These include transparency obligations for system operators regarding network congestion and closer to real-time trading deadlines.

Finally, to ensure competitive markets and transparent price setting, the Agency for the Cooperation of Energy Regulators (ACER) and national regulators will have a strengthened capacity to monitor the integrity and transparency of the energy market. In particular, the updated Regulation on Wholesale Energy Market Integrity and Transparency (REMIT) will ensure better data quality and strengthen ACER’s role in investigations of potential cross-border market abuse. Overall, it will strengthen the protection of EU consumers and industry against any market abuse.

Next steps

The proposed reform will now have to be discussed and agreed by the European Parliament and the Council before it comes into force.

Lena Flitzani