European Parliament passes electricity, gas market reform

European lawmakers adopted all four elements of the energy market design reform proposal. The aim is to facilitate the switch to a renewables-based system, including in industrial and manufacturing facilities, and protect consumers and producers from price swings. The changes are integrating nuclear energy and all colors of low-carbon hydrogen into the energy transition, but also fortifying the role of fossil gas and giving a lifeline to ailing coal plants.

The European Union is wrapping up the legislative activity under its Green Deal Industrial Plan, less than two months before the next European elections. The European Parliament voted in favor of four directives and regulations and left it to the Council of the EU to declare the the energy market reform measures official.

It is no surprise that officials in charge are celebrating the breakthrough. It took several years to get the legislation package through the bureaucratic machine. On the other hand, as usual, the participants in the process significantly watered down the initial proposals.

The aim of the electricity and gas market design reform is to contribute to the establishment of an energy system based on renewable sources. It would facilitate the transition of industrial production. The new rules are for cushioning the impact of violent price swings. The administration in Brussels intends to safeguard energy producers while also helping consumers avoid cost shocks and supply disruptions.

Reform keeps market fundamentals little changed

Some negotiators used to call for setting up a separate market for electricity from gas plants. Namely, energy prices were already spiking for more than half a year when Russia attacked Ukraine in February 2022. It escalated the energy crisis, mostly because of cuts in deliveries of Russian gas.

The instability pushed the market reform agenda up the ladder. In particular, the upswing in gas prices had an immediate effect on electricity prices under under the merit order system. It is because the most expensive source sets the overall electricity price. But it still took another two years and the market fundamentals were kept little changed.

The European Commission formally launched the Green Deal Industrial Plan in February of last year. It includes the Critical Raw Materials Act – CRMA and the Net Zero Industry Act (NZIA). It is consistent with other initiatives, too: the Fit-for-55 package, European Green Deal and REPowerEU plan.

EU to trim spikes in overall energy prices with new mechanisms

The changes are integrating nuclear energy and all colors of low-carbon hydrogen into the EU’s energy transition. At the same time, they are strengthening the role of fossil gas. In practice, green or renewable hydrogen and pink hydrogen, which is obtained using electricity from nuclear plants, are still far from profitable. Even ailing coal plants got a lifeline, despite the nominal renewables rallying call.

Two-way contracts for difference (CfDs) are supposed to provide price stability on the side of major energy producers and buyers. The measures include incentives for wind and solar power, run-of-river hydropower plants, geothermal and nuclear energy. Consumer rights are the equivalent for small businesses and households, especially the ones facing energy poverty.

Vulnerable customers will be protected from having their electricity cut off

Both worlds on the consumer side are getting easier access to long-term power purchase agreements (PPAs) and contracts with retail power suppliers. Alternatively, they can choose dynamic tariffs, which follow market prices.

Vulnerable customers will be protected from having their electricity cut off, including during disputes between suppliers and customers, the European Parliament stressed.

After the Council of the EU, consisting of relevant ministers from member states, signs off on the package, governments will be able to intervene in electricity tariffs for the corporate sector and households at times of instability. The European Commission is getting the authority to propose declaring a general or regional electricity price crisis.

The current thresholds are EUR 180 per MWh in wholesale and a jump in retail prices of 70%. Then countries can impose price controls for 70% of the company realm and 80% of households.

Lead MEPs highlight benefits for competitiveness, social justice, decarbonizing industrial production

“The new regulation will transform the current energy market into one based primarily on two sources – green electricity and green gases. This is a huge step towards meeting the EU’s ambitious climate goals and making the EU more competitive on global markets,” rapporteur Jerzy Buzek said in the European Parliament’s press release.

He was responsible for the Regulation on the Internal Markets for Renewable Gas, Natural Gas and Hydrogen. “It’s a step toward a new energy transition; in the future, we want to have electricity from renewables, nuclear, and hydrogen… The transition must be socially just and cost-effective,” the former Polish prime minister and president of the European Parliament said, as quoted by Eunews.

González: The goal is more renewables and stability for consumers with more stable prices, more electric cars and less carbon emissions

Separately, the directive on common rules for the internal markets for renewable gas, natural gas and hydrogen is enabling “a modus operandi that does not bring fear among citizens about the transition away from methane and that ensures competition and competitiveness” for the industry, the lead member of the European Parliament Jens Geier pointed out.

Europe’s steel and chemical industries, which are hard to decarbonise, will be placed at the centre of the development of a European hydrogen market, he said.

Spanish MEP Nicolás González Casares was the rapporteur for the Electricity Market Design Regulation and Electricity Market Design Directive. The goal is “social and climate justice, with more renewables and stability for consumers with more stable prices, more electric cars and less carbon emissions,” according to the legislator.

Hydrogen grid operators to form European network

The electricity market design reform cleared the way for financial support through capacity mechanisms for essential generation facilities. Even gas- and coal-fired power plants with illegally high carbon dioxide emissions can get such backing through 2028. The provision got Poland on board, but turned Greens–European Free Alliance against the deal.

The proposals would stipulate the creation of a European network of network operators for hydrogen (ENNOH). They also cover infrastructure, transport and pricing. The gases segment includes rules on the voluntary platform for joint purchases of fossil gas and the European Hydrogen Bank mechanism.

Belgrade Energy Forum, scheduled for May 13-14 in the Serbian capital, will feature a panel discussion on the effects of the electricity market design reform.