Brussels plans to require EU governments to set electricity reduction targets and provide guarantees for long-term business contracts, as part of reforms to the bloc’s power market after the energy crisis.
The initial proposals, seen by the Financial Times, have been prompted by the record high prices that consumers across the EU faced last year as a result of Russia’s steady cutting of energy supplies to Europe.
Under the EU’s current energy market design, electricity prices are tied to gas prices, which meant the squeeze on gas supplies also pushed up electricity costs.
Countries such as Spain and Greece, whose consumers are particularly exposed to wholesale market rates because of the structure of their national markets, have been calling for a broad reform of the bloc’s 30-year-old electricity market, including a separation of gas and electricity prices.
However, other member states, such as Germany and the Netherlands, are advocating for more incremental reforms, warning that sudden changes to the market could have unintended consequences.
“The recent energy crisis has highlighted that the energy market’s short-term focus can distract from broader, longer-term goals,” the proposal document said, citing the bloc’s ambitious targets for renewable power.
But the draft measures put forward by the European Commission stop short of a widescale overhaul of the market.
Instead, the bloc’s executive has proposed that EU capitals put in place measures to support the uptake of long-term “power purchase agreements” by offering financial guarantees so that smaller companies can buy into such contracts.
It has also set out draft measures that allow grid operators to encourage cuts to consumption at peak times and requirements for EU capitals to set demand reduction and electricity storage targets.
The reforms follow a series of measures taken by the bloc last year to quell the rise in prices and comes as part of a wider drive by EU policymakers to preserve the competitiveness of industrial players that have been particularly affected by the steeper energy costs.
Under the proposed rules, member states would be allowed to intervene in the market if Brussels declared a regional or “union-wide” price crisis, where rates are substantially above the five-year average or “sharp increases in electricity retail prices . . . are expected to continue for at least six months”.
But the draft document stops short of making some of last year’s emergency measures permanent, such as the cap on the profits of renewable energy generators, which industry executives said had damped investment in the market.
“The commission has a nightmare job here, this should be being done in a much more systematic and considered way,” said a senior executive at an industry body, who asked not to be named.
“The idea that a crisis can be declared and the rules change worries me hugely,” the person added.
Kristian Ruby, secretary-general of sector association Eurelectric, said he was “still studying the details” but that the introduction of a hedging obligation for suppliers in order to cut their exposure to short-term price spikes could risk prolonging the current high prices.
“Suppliers could be forced to lock in prices that they couldn’t pass on to customers,” he said.
In an effort to curb electricity prices for consumers, the draft measures stipulate that bill payers can opt for fixed-price, fixed-term contracts of at least one year, although the timeframe could change before the official announcement of the proposals next week.
The commission did not respond to a request for comment on the draft proposals.
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