The European Union has introduced new regulations for its internal electricity market, seeking to address price volatility, protect vulnerable consumers and businesses, and accelerate the deployment of zero-emissions power generation.
The previous market pricing model linked electricity prices to fluctuating gas costs, resulting in substantial price spikes and windfall profits for renewable energy producers. Under the revised regulations, the pricing model remains intact, but the European Commission gains the authority to declare European or regional price crises. This enables governments to temporarily cap prices for small and medium-sized enterprises (SMEs), energy-intensive industries, and vulnerable consumers. Such interventions can be enforced when wholesale prices exceed two and a half times the average of the previous five years (minimum €180/MWh) and are projected to remain elevated for at least six months.
The new rules also allow for two-way contracts for difference (CfDs) to incentivize investments in renewable energy and nuclear power. Previously, CfDs guaranteed minimum wholesale prices through national subsidies. The updated model introduces a price cap, requiring generators to repay excess revenue above the maximum price to the state.
Furthermore, the regulations emphasize consumer protection, guaranteeing freedom of supplier choice and options between fixed-term, fixed-price contracts or dynamic contracts linked to the wholesale market price. EU member states are responsible for safeguarding vulnerable or low-income households from market uncertainties, such as implementing disconnection bans or support schemes.
All EU governments, except Hungary, unanimously approved the new regulations. Hungary expressed concerns about the potential infringement on its national authority to declare energy crises and ensure affordable prices for households.
The European Commission anticipates a full implementation of the new regulatory framework within six months. EU Vice-President Maroš Šefčovič anticipates enhanced security, affordability, and transparency for European consumers and businesses.
Representatives of the electricity industry, Eurelectric, welcomed the new market rules, recognizing the continuation of a unified European internal market. Kristian Ruby, Eurelectric’s secretary-general, emphasized the preservation of efficient power systems and the focus on improving long-term hedging and contracting opportunities. He highlighted the alignment of the new market design with the EU’s climate neutrality goals and emphasized the crucial need for financing to facilitate the transition.
The EU’s electricity market reforms aim to address the challenges posed by energy price volatility, protect vulnerable consumers, and accelerate the deployment of sustainable energy sources.
