Recently, the European Parliament passed the EU Electricity Market Reform Act, aiming to stabilize electricity prices.
On April 11, the European Parliament passed the EU Electricity Market Reform Act with 433 votes in favor, 140 against and 15 abstentions. The bill prioritizes stabilizing the electricity market and protecting ordinary consumers, and builds on that foundation to promote the rapid and large-scale deployment of renewable energy, while establishing new market mechanisms to mitigate the energy crisis.
Stabilize the electricity market
The EU Electricity Market Reform Act underscores the EU's determination to stabilise electricity prices, seeking to ensure that both energy producers and consumers can benefit from predictable prices. It is worth noting that the bill explicitly requires that electricity suppliers and customers cannot cut off the electricity supply themselves in the event of a dispute, so as to protect consumers, especially the most vulnerable.
In fact, last year, the European Commission proposed to redesign the rules for the operation of the electricity market to strengthen the protection of the wholesale electricity market in the EU. The European Commission says the reforms are designed to make the EU energy market more resilient and make the energy bills of European consumers and businesses more independent of short-term market electricity prices.
The EU Electricity Market Reform Act stabilizes prices through CFDs. Under the CFD Regulation, when making new investments in low-carbon energy sources (including renewables and nuclear energy), EU member governments agree in advance to pre-set price ranges for power producers, and when the market price is higher than the agreed price range, the power producer must repay part of the revenue, and when the market price is below the price range, the regulator can compensate the power producer appropriately. In countries and regions where CFDs are not available, the European Parliament encourages the promotion of PPAs.
The EU Electricity Reform Act aims to reduce the dependence of electricity prices on volatile fossil fuel prices, protect consumers from price spikes, and accelerate the deployment of renewable energy, according to Oil Price.com.
The European Parliament said the electricity market reform was aimed at helping consumers secure more stable and longer-term contracts, while prohibiting electricity suppliers from unilaterally changing contract terms and cutting electricity supplies to vulnerable customers.
Responding to the energy crisis
In addition to the CFD regulation, the electricity price crisis mechanism is also one of the main measures promoted by the EU Electricity Market Reform Act. The electricity price crisis mechanism means that in the event that electricity prices are abnormally pushed up, the EU can declare a regional or EU-wide electricity price crisis, allowing member states to take temporary measures to set electricity prices for small and medium-sized enterprises and energy-intensive industrial consumers.
In the wake of the widespread energy crisis triggered by Russia's invasion of Ukraine, the EU has sought to reform the way the electricity market works to avoid a repeat of the mistakes of the past.
In order to cope with the energy supply crisis as calmly as possible, the EU Electricity Market Reform Act is also tolerant of fossil fuel power generation. The bill extends the limit on CO2 emissions from power stations until 2028, which is equivalent to allowing member states to subsidize coal and natural gas power generation. However, the bill still requires industry to control methane emissions. By 2027, the EU will ban the emission and burning of methane.
In addition, to increase power system flexibility, EU member states must assess supplier needs, set targets for non-fossil energy production, and work to build energy storage systems.
There is an urgent need to upgrade the power grid
Parallel to the reform of the electricity market, there is also an upgrade of the power grid. Based on the EU's plan to increase the share of renewable energy to 42.5% by 2030, there is an urgent need to upgrade and strengthen the transmission network and related infrastructure as soon as possible, while seeking internal electricity market connectivity to ensure a stable power supply during the energy crisis.
In fact, insufficient grid capacity is already beginning to threaten Europe's energy transition. A new analysis by Ember, an independent energy think tank, found that many European countries' grid plans are not aligned with their 2030 wind and solar targets, and if they are not adjusted and improved as soon as possible, there will be a lot of "wind-solar" power "nowhere to place".
In 11 of the 26 European countries studied by Ember, the grid is not strong enough to withstand the expected "wind" power connection, and grid upgrades are urgent.
At the end of 2023, the European Commission announced the "Power Grid Action Plan", which intends to invest 584 billion euros to overhaul, improve and upgrade the European power grid and its related facilities. According to the European Commission, the European power grid faces new major challenges and a complete grid overhaul is necessary to meet the growing demand for electricity.
The Power Grid Action Plan focuses on grid upgrades, especially cross-border grid upgrades, so that they can better integrate renewable electricity from different countries and meet the demand for more clean electricity on the grid. At the same time, the EU hopes to attract more investment, implement more power grid projects, improve access to grid project financing, protect the grid supply chain, etc., to increase grid operational transparency and improve electricity prices. In addition, the EU wants to further speed up the project approval process, urging institutions such as the European Investment Bank to provide new financing tools to encourage more efficient operation of the grid.
With around 40% of the EU's distribution network in use for more than 40 years and doubling its cross-border transmission capacity by 2030, the European Commission said, and that grids within Europe must adapt to more digital, decentralized and flexible systems, with cross-border grids in particular requiring large amounts of renewable electricity transmission capacity. To this end, the EU intends to introduce regulatory incentives, including requiring member states to share the costs of cross-border grid projects.
It is understood that the first batch of 166 cross-border power grid projects in the "Power Grid Action Plan" will help double the capacity of the EU power grid by 2030.
Text丨Reporter Wang Lin