Making the EU electricity market design more resilient, sustainable and secure

In March 2023, the European Commission unveiled an ambitious reform of the European Union’s electricity market, presenting a response to the energy crisis exacerbated by the Russian invasion of Ukraine. This initiative aims to accelerate the transition to renewable energies and reduce dependence on gas, emphasizing the urgency of adjusting the electricity market to support the green transition and provide widespread access to low-carbon and affordable electricity.

The EU electricity market, well-established for over twenty years, has been effective, but recent energy challenges and irrational price levels following the Russo-Ukrainian crisis have prompted the Commission to propose legislative reform. This reform, affecting regulations such as electricity regulation and the electricity directive, encourages long-term contracts with non-fossil energy sources, particularly to combat price volatility and reduce the impact of fossil fuels on consumers. It aims to maintain fair competition by improving market transparency and integrity.

The central goal of the reform is to shift towards an energy system focused on renewable and low-carbon sources, crucial for reducing costs for consumers and achieving the goals of the European Green Deal and the REPowerEU plan. It aligns with the Green Deal industrial plan, providing the European industry with a supply of renewable, non-fossil, and affordable energy. The reform also emphasizes consumer protection by offering diverse contract choices and clear information to stabilize prices and reduce supplier failure risks.

To enhance the flexibility of the electrical system, member states will need to assess their needs and set goals to increase non-fossil flexibility, introducing support schemes for demand-response and storage adaptation. The proposal also aims to strengthen market integrity and transparency through stricter regulation by the Agency for the Cooperation of Energy Regulators (ACER) and national regulators.

The European Parliament has settled its positions to empower citizens and businesses to better manage price shocks. The focus is on a truly European vision to prevent market fragmentation and strengthen the internal market, with immediate benefits for consumers centered on empowerment, protection, and mandatory measures in case of new electricity price crises.

The reform of the electricity market design has also sparked complex debates within the Council, especially regarding the treatment of state aid to electricity producers through Contracts for Difference (CfD). Discussions aim to find a compromise ensuring fair competition conditions while protecting the interests of Member States.

The reform still needs approval from the Council and the European Parliament. It represents a crucial step to address the flaws in the system revealed during the recent energy crisis, aiming to strengthen a European electricity market to make it more resilient, sustainable, and secure by the end of the current legislative term.

Editor-in-Chief 

Laurent ULMANN