Countries warn EU against 'crisis mode' overhaul of energy market

EU Energy Market Faces Resistance to Overhaul from Seven Countries

Recently, Denmark, Germany, the Netherlands, Estonia, Finland, Luxembourg, and Latvia jointly cautioned the European Commission against rushing into extensive reforms to the European Union’s electricity market in response to the ongoing energy crisis. In a letter to the Commission, the countries called instead for limited tweaks to the system that maintain the existing market design while addressing the recent surge in electricity prices caused by cuts to Russian gas supply.

The European Commission has been working on a revamp of the EU electricity market rules to cushion consumer bills from fossil fuel price spikes and prevent a repeat of last year’s electricity price surge. However, the seven countries have voiced their concerns that major changes could undermine the market’s functionality and deter massive investments in renewable energy.

The group has credited the existing market design for fostering years of lower electricity prices, expanding renewable energy, and ensuring sufficient power production to meet demand and avoid shortages. Lars Aagaard, Denmark’s energy minister, emphasized the importance of not “killing the golden goose” of the single market for electricity, which has been a significant achievement in the last decade.

The seven countries have acknowledged the need for improvements to the market, especially considering last year’s soaring power costs. However, they insist on avoiding a crisis-mode approach and conducting in-depth impact assessments before making any significant changes. In their letter to the Commission, the countries stated that any reform that goes beyond targeted adjustments to the existing framework should be underpinned by thorough analysis.

The group has shown support for introducing voluntary contracts for difference (CfDs) for new renewable generation, enabling consumers to choose between fixed and fluctuating power contracts, and maintaining the market’s functionality. However, they oppose the extension of the EU’s temporary measure that claws back windfall revenue from non-gas generators, citing the need to maintain investor confidence in renewable energy investment.

In contrast, Spain and France have proposed more extensive reforms to the electricity market. Spain has suggested a shift to more long-term, fixed-price contracts for power plants to limit price spikes. The seven countries acknowledged that schemes such as CfDs could play a role in this, but they insisted on voluntary participation and focus on new renewable generation while still “reacting” to the market.

Electricity industry lobbying group Eurelectric has also warned against making CfDs mandatory, claiming that it could undermine competition in the power market and deter investors. Therefore, the seven countries have shown support for voluntary participation in these contracts.

The letter from Denmark, Germany, the Netherlands, Estonia, Finland, Luxembourg, and Latvia has emphasized the need for a cautious and thorough approach to electricity market reforms, highlighting the importance of maintaining the market’s functionality, incentivizing massive investments in renewable energy, and avoiding any action that could undermine investor confidence in the sector.

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