Power Lobby Urges 'Caution' on Planned EU Electricity Reforms

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Written by Martin Lynch, European News Editor for Industrial Info (Galway, Ireland)--An alliance of Europe's largest energy companies is calling on the European Union (EU) not to make sweeping changes to the current electricity market in its planned reforms.

Fourteen companies, including Vattenfall (Stockholm), Iberdrola (Balboa, Spain), RWE AG (Essen, Germany), Uniper SE (Dusseldorf, Germany) and Enel SpA (Rome, Italy), have called on the European Commission to exercise "caution" when it meets later this month to propose changes to the electricity system that will protect business, economies and customers from the record-breaking energy prices experienced in 2022. After last year's energy crisis, brought about by Russia's invasion of Ukraine, the EU has made electricity reform a priority.

The upcoming Electricity Market Design reform is already seeing divisions among EU Member States, with some wanting sweeping changes and others proposing tweaks to the existing system. Most energy companies made record profits over the past year due to soaring gas and electricity prices, prompting many countries to implement windfall taxes. For additional information, see December 6, 2022, article - European Energy Companies Brace for Heavy Taxes.

"As the European energy crisis is primarily a supply crisis and not a demand crisis, this reform of the electricity market needs to be handled with caution, as it bears the risk of creating fragmentation of the internal energy market that would negatively impact the economy and the daily lives of people," the joint letter stated. "Europe currently faces multiple challenges. The Russian aggression against Ukraine has put our economy and our energy system under unprecedented pressure. European citizens and companies are facing high prices and high inflation. At the same time, the climate crisis requires that the transition to climate neutrality happens as fast as possible. Massive investments in renewable and low-carbon electricity and technology are therefore needed more than ever."

The alliance pointed to the additional pressures caused by the U.S. Inflation Reduction Act, with its "very favorable conditions" for green investments which "represents a huge challenge for the competitiveness of the EU's industry." The alliance is calling for the European response to be "fast, robust and with a strong focus on enabling framework conditions for renewable and low-carbon electricity investments and energy efficiency."

The letter calls for evolution rather than revolution in the Commission's proposed changes and that emergency measures like the price caps and windfall taxes enacted under Article 122 do not become more permanent fixtures. "In recent years we have learnt from different crises (COVID, Ukraine) that various market situations can occur over a short time period, very high prices (2022) as well as very low prices (2020). The exceptional emergency measures adopted by the Council based on Article 122 should not be confused with structural market reform. The temptation to try to institutionalize these exceptional interventions should be avoided, as the result has been a fragmentation of the European internal market. What we need is a well-designed market that includes the tools to tackle different kinds of crises (very high or very low prices), providing a European solution that guarantees protection to consumers as well as investors' confidence."

Seven leading EU countries, including Germany, Finland and Denmark, have taken a broadly similar stance to the energy companies, calling on the Commission to act with care. "We must resist the temptation to kill the golden goose, that our single market for electricity has been in the last decade," said Lars Aagaard, Denmark's energy minister, reported by Reuters. "Any reform going beyond targeted adjustments to the existing framework should be underpinned by an in-depth impact assessment and should not be adopted in crisis mode."

Other EU nations including Spain and France want more extensive reforms including ones that allow national regulators to sign much longer-term contracts with more favorable pricing or fixed-prices with electricity suppliers. These could be achieved through the use of tools like "contracts for difference" (CfDs) which can cover periods of up to 25 years or private, shorter-term power purchase agreements between the parties.

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