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Irina Slav

Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.

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EU To Overhaul Electricity Market To Encourage More Renewables

  • According to a draft proposal seen by Reuters, the European Commission will propose a revamp of the EU’s electricity market rules on Tuesday.
  • The draft proposal aims to protect consumers from price swings by encouraging countries to lock in long-term, fixed-price contracts.
  • As the EU wants to nudge countries away from Russian oil and gas and to lower emissions, fossil fuel-powered generators will not receive this support.
Electricity

The European Union will overhaul its electricity market in a way that encourages the development of more wind and solar installations and discourages more fossil fuel generation.

According to a draft of the proposal seen by Reuters, the overhaul will push fixed-price power contracts designed to protect consumers. The proposal would mean state support for new low-carbon investments must be done through contracts for difference – meaning there would be a fixed strike price for electricity regardless of short-term price swings.

The changes planned by the Commission are much lighter than what some member states insisted was done with electricity market rules across the bloc, with a focus on decoupling gas prices from electricity prices to avoid a repeat of last year’s price spike.

Instead, the EU will bet on tying subsidies for new wind and solar capacity to their developers committing to sell their output under two-way contracts for difference that would ensure a stable price over a long period of time.

It will also encourage more generators and customers to enter into power purchase agreements by guaranteeing such contracts, Reuters reported.

None of these forms of support will be made available to fossil fuel generators that currently provide baseload generation capacity for EU members.

Besides the absence of support, the EU also plans to squeeze out fossil fuel generators by requiring member states to invest in battery storage and other alternatives to baseload generation, according to the draft document seen by Reuters.

“It has become clear that we need to complement short-term markets with a more important role for long-term instruments to shelter consumers from price volatility and give credible price signals to renewable investors,” Energy Commissioner Kadri Simson said last week.

“How will we do that? We will allow industry to take advantage of power purchase agreements (PPAs) that allow them to buy electricity at predictable prices. And where state aid is necessary, we will also promote contracts for difference (CfDs),” Simson also said.

By Irina Slav for Oilprice.com

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