German renewables industry criticises EU electricity market reform proposal
Note: This article will be updated as more reactions are published. For background on the reform proposal, also read the Q&A: Making the EU鈥檚 electricity market fit for a climate-neutral future.
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Germany鈥檚 renewable energy industry has said a proposed reform of the design of the EU鈥檚 electricity market, presented on 14 March by the European Commission, 鈥済oes too far鈥�, and called for the delegation of more decision-making power to the national level. Other German reactions were less critical, with industry association BDI and energy industry lobby group BDEW welcoming the fact that no drastic changes to the system were proposed.
鈥淭he EU proposals go too far and massively interfere with the member states' systems,鈥� . The lobby group focussed criticism on the proposed obligation that future subsidies for low-carbon electricity generation would have to be made through so-called .
鈥淔or some member states, this form of marketing may bring advantages,鈥� said Peter. 鈥淭his is not the case for Germany," as the mechanism which skimmed exceptionally high revenues off of electricity producers in the energy crisis had shown. "It generated high implementation costs for energy producers and severe market distortions, but the desired price-reducing effect failed to materialise,鈥� she added. Peter called on the German government to advocate for a voluntary solution for two-way CfDs in the further legislative process.
Two-way Contracts for Difference are agreements between an electricity generator and a public body (in this case the state), where a price of electricity (which makes economic sense for a generator) is pre-arranged - usually by a competitive tender. If the price of the electricity sold on the market is lower than the pre-arranged price of the contract, the state pays the difference to the generator (thus ensuring a stable revenue). However, if the market price of electricity is higher than the pre-arranged price, the generator has to pay those profits back to the state. In short, CfDs are a two-way payment process that ensures generators receive a certain level of remuneration for the electricity produced while preventing disproportionate revenues.
In Germany, renewable energy producers enter auctions to build facilities and receive support. Here, they receive the so-called , provided for in the Renewable Energy Act (EEG). The premium covers the difference between the price agreed through auctions and the market price. However, generators do not have to pay back revenues if the market price is above the agreed price.
The Commission presented its proposal after a meeting in Strasbourg. the reform aims to speed the expansion of renewables and the phase-out of gas, decouple consumer bills from volatile fossil fuel prices, better protect consumers from future price spikes and potential market manipulation, and make the EU's industry clean and more competitive.
The energy crisis fuelled by Russia鈥檚 war against Ukraine has highlighted the need to reform the electricity market to better support the energy transition, said the Commission. Last year, European electricity prices spiked in the wake of Russia鈥檚 invasion of Ukraine and following the curtailment of Russia鈥檚 fossil fuel energy supply to the EU. The ensuing energy crisis, which saw consumers struggle to pay unsustainably high electricity bills and companies scramble to replace gas supply at higher costs, made apparent that accelerating the energy transition was of environmental, economic and strategic energy security importance for the bloc.
The Commission now proposes to revise several pieces of EU legislation, including the Electricity Regulation and the Electricity Directive. It proposes changes such as:
- The deployment of more stable long-term contracts such as Power Purchase Agreements (PPAs) should be facilitated
- All public support for new investments in low-carbon electricity generation will have to be in the form of two-way Contracts for Difference (CfDs); governments must pass possible excess revenues to consumers
- Consumers should be given more choice on electricity contracts: either lock in secure, long-term prices to avoid excessive risks and volatility, or have dynamic pricing contracts to take advantage of price variability to use electricity when it is cheaper
- Allow EU countries to extend regulated retail prices to households and small and medium-sized companies (SMEs) in case of a crisis
- Allow countries to introduce new support schemes especially for demand response and storage
The proposal will now be debated in the European Parliament and by member state governments in the EU Council, before the institutions negotiate a final draft of the legislation. This process is set to take months, but the Commission it hopes consumers will be able to feel changes already this year, calling on parliament and member states to make it a high priority.
Sweden currently holds the rotating presidency of the EU Council and as such has an important role to play in facilitating the negotiations. 鈥淪weden is ready to lead negotiations with member states in the Council on how to improve the market design,鈥� the country鈥檚 energy minister Ebba Busch. She cautioned against overly drastic changes which would harm the system. 鈥淲e need to keep elements that are working well within the present market design and do not harm the functioning of electricity markets,鈥� she said.
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More reactions
Holger L枚sch, deputy managing director of industry association BDI
鈥淭he EU does well to optimise the electricity market with a sense of proportion,鈥� the BDI鈥檚 L枚sch . 鈥淚t must not undermine market principles of the electricity market out of crisis mode.鈥� He said the industry welcomed the fact that the EU Commission is focusing on an increased role for longer-term supply contracts (PPAs) and two-way contracts for differences in order to make consumer prices less dependent on price fluctuations of fossil energies in the future and to stimulate investments in clean technologies. 鈥淗owever, they must remain voluntary in nature and be designed in such a way that medium-sized companies can also make use of them.鈥�
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Kerstin Andreae, head of energy industry association BDEW
Energy industry association BDEW welcomed the drive to reform the EU electricity market, and said that refraining from drastic changes is the right move by the European Commission, because the design worked despite the challenges. 鈥淭he high electricity prices are not due to a failure of the internal electricity market,鈥� said Andreae. She argued they were caused by a tightening of energy supply from Russia. 鈥淎pproaches to energy price stabilisation and security of supply should therefore be clearly separated.鈥�
Andreae said the core of a long-term reform of the European electricity market should be to secure the necessary investments in renewable energies. The proposals on financing the expansion of renewable energies, for example through PPAs and CfDs, went in the right direction, but 鈥渘eed a more detailed analysis in the coming weeks,鈥� she said.
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Simone Peter, head of the German Renewable Energy Federation (BEE)
鈥淭he EU proposals go too far and massively interfere with the member states' systems,鈥� BEE head Simone Peter in a statement. 鈥淲e reject the mandatory introduction of two-way contracts for difference (CfD) at EU level. In the further legislative process, the German government should advocate for a voluntary solution. For some member states, this form of marketing 鈥渕ay bring advantages,鈥� said Peter. 鈥淭his is not the case for Germany鈥� as the mechanism to skim off exceptionally high revenues of electricity producers in the energy crisis had shown. 鈥淚t generated high implementation costs for energy producers and severe market distortions, but the desired price-reducing effect failed to materialise,鈥� she said and called for the design of the electricity markets to take place at the national level.
Peter criticised that the Commission aimed to recognise nuclear energy as eligible for support, while not doing the same for bioenergy. 鈥淣uclear power is an expensive, unsafe, high-risk experiment that also feeds in too inflexibly and is thus incompatible with the fluctuating sources of wind and solar,鈥� she said.
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German Association of Local Utilities (VKU)
Local utilities association VKU said it was 鈥渞elieved鈥� that the Commission stayed committed to the merit-order system, what it called the fundamental mechanism the market follows. 鈥淭he current market model has served the integration of the European electricity market well and should continue to be seen as an essential element for effective and efficient pricing and thus for the deployment planning of generation capacities," said VKU head Ingbert Liebing.
The VKU welcomed efforts to facilitate the deployment of PPAs, and that the Commission aims to help member states introduce 鈥榞reen and flexible鈥� capacity mechanisms. 鈥淚n order for municipal utilities to be able to maintain a secure supply despite volatile renewable energies, it is of central importance that not only the energy [sic] produced, but also 鈥� to a much greater extent and in a different way than in the past 鈥� the provision of reliable generation capacities is appropriately rewarded," said Liebing. He argued that companies would otherwise not make investments in the construction of power plants and storage facilities that only run for a few hours a year.
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Martin Theuringer, managinig director of German Steel Federation (WV Stahl)
The German steel industry lobby group WV Stahl criticised that the proposal did not supply a solution regarding competitive electricity prices for industry. 鈥淥nly with affordable energy can companies successfully shape their path to climate neutrality,鈥� said managing director Theuringer. 鈥淲e therefore need an industrial electricity price as soon as possible. This should be worked on now with high priority.鈥�
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Austrian climate minister Leonore Gewessler
Leonore Gewessler, Austria鈥檚 climate minister, said the proposal contains small steps in the right direction but is not enough to spread the benefits of renewables to consumers, . While Austria agrees that 鈥渙n the way to a renewable, climate-friendly electricity system, pricing must also be improved鈥� and 鈥減eople should also benefit from cheap green electricity from Europe,鈥� the reform 鈥渇alls short of expectations,鈥� said Gewessler.
Vienna will now look at the proposal and 鈥渃all for concrete improvements鈥�, including decoupling electricity prices from volatile, high gas prices. 鈥淭his is certainly not an easy task 鈥� but it is necessary. The Commission is challenged here and must not shirk its responsibility,鈥� Gewessler also said.
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Michael Bloss, Green Party member of the European Parliament
Green MEP Bloss called the proposal a 鈥済ift for the nuclear industry,鈥� as it supplied 鈥渕assive subsidy promises鈥� to the industry, 鈥渆ven though it is not compatible with a future, flexible electricity system.鈥� Bloss called for more possibilities for low-income households to get cheaper electricity contracts, and to rather empower the people to produce and store electricity than support 鈥渇ossil corporations鈥�.
