View from Brussels: If it ain’t broke, don't fix it
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The European Union is reviewing the rules that govern its electricity markets as part of a bid to rein in energy prices and prevent a repeat of the crisis that was triggered by Russia’s invasion of Ukraine. But don’t expect a major overhaul.
At the height of the energy price crisis, the political pressure on the EU to do something about sky-high bills was so great that Brussels announced it would look at rewriting the rules that underpin electricity markets.
This was a huge deal, as officials had previously insisted that those rules were not to be touched and that messing with them might prove to be disastrous for the 27 countries that make up the EU.
But the price crisis was too substantial to ignore. Some countries announced support schemes that totalled more than 5 per cent of their GDPs, while everyday voters struggled to understand why expensive gas prices were pushing up the price of cheap renewables.
Brussels responded by saying that the current market "no longer works". That prompted a scramble from governments to outline what they thought the rules review should entail and which of their vested interests should be protected.
Greece suggested splitting the energy market into two pools: one for low-carbon energy generation that would get a guaranteed price and one for on-demand technologies like gas and coal, if necessary. That was seen as an extremely radical option.
Spain said that all renewable energy projects should be covered by state-backed agreements known as contracts for difference (CfDs), which would set the price and shield households from spikes.
More than six months passed, the political pressure waned and the EU’s energy regulator agency said that the market was actually in fact working but that it was not designed to operate under such extreme conditions.
As one energy expert puts it: "the market works just fine, it does exactly what it was built to do. The main problem is that it has been providing an answer that people do not like any more."
EU officials like climate chief Frans Timmermans said that the Commission would "not throw the baby out with the bathwater" in its reform, while energy boss Kadri Simson insisted that the review would only be "targeted".
That proved to be true earlier this week when the EU executive branch published its plan to tweak the rules, preserving the existing marginal pricing system that ranks power generation in a merit-based order.
Renewable energy developers welcomed that decision after previously warning the EU not to mess with the market too much, insisting that a major overhaul would scare away much-needed investments.
Spain’s suggestion that all cheap energy generation be assigned to CfDs was ultimately ignored; instead governments would only have to resort to that option if public money is involved with financing the project.
France won somewhat of a small victory in the proposed update, as the Commission does not rule new and existing nuclear out of the equation. Around 70 per cent of the French energy mix comes from atom-smashing and an expansion is on the cards.
The updated rules also give consumers more power by requiring energy companies to provide more detailed information about different types of short- and long-term contracts, as well as offering the option to have more than one contract type at once.
As more households electrify more and more of their energy demand, especially through heat pumps and electric vehicles, the chance to have a flexible contract to power those demands and a fixed contract for the rest of the house is seen as a game-changer.
Nothing in the EU is guaranteed until everyone has signed off on a new batch of rules though, so now members of the European Parliament and national governments will have to have their say.
The Commission and countries like France want a quick agreement, ideally by the end of 2023. However, Germany and other more sceptical countries favour dragging the process out until after May 2024’s European elections.
Fingers crossed then that no earth-shattering events happen before a deal can be sorted out or scary energy bills might be a worry for a long while yet.
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