15.05.2023 | EU electricity market: reform in difficult times
On March 14, 2023, the European Commission published its proposals for the revision of the EU’s internal electricity market design and the tightening of the supervisory rules for wholesale markets (REMIT). In the meantime, the legislative process is underway in the two legislative chambers of the EU, the European Parliament and the Council - which brings together the EU member states. The outcome of the procedure could be influenced by Spanish domestic politics and price developments in the coming months.
In early April 2023, the European Parliament appointed the relevant rapporteurs: Spanish Social Democrat Nicolás González Casares is responsible for the reform of the EU internal electricity market. Portuguese MEP Maria da Graça Carvalho, a member of the European People's Party (EPP), has been appointed rapporteur for the parallel reform of energy trading rules (REMIT). Each of the rapporteurs is assisted by six shadow rapporteurs from the other political groups. The reform of the EU internal electricity market seems to be a high priority for the MEPs: early on MEPs had recommended themselves for the role of rapporteur during parliamentary and public debates.
The selection of the rapporteurs gives hints at the domestic political debate on the Iberian Peninsula playing a significant role in the legislative process in Brussels. In spring of 2022, the Iberian Peninsula caused a stir when Spain and Portugal - under social democratic and socialist governments respectively - introduced subsidies for natural gas-fired electricity generation: this measure was intended to relieve the burden on end consumers. The situation was particularly critical in Spain, where many vulnerable household customers were exposed to tariffs indexed to the spot market. The measure - the so-called Iberian model - has since been approved by the European Commission and extended until the end of 2023. For the period thereafter, the Spanish government has promised its voters a fundamental reform of the electricity market and, in particular, to skim off the excess profits of nuclear and hydropower operators. In view of the national elections at the end of 2023, the Spanish government is under pressure: the fact that the rapporteur Nicolás González Casares hails from the same party as the Spanish Energy Minister Teresa Ribera and that Spain will take over the EU Council Presidency from July 1 opens up the possibility of reforming the Spanish electricity market via EU legislation.
During a hearing in the responsible Energy Committee of the European Parliament on April 24, 2023, however, a cautious approach emerged from most MEPs, which is more in line with the proposals of the European Commission. Admittedly, there was fundamental criticism of the current electricity market design and, in particular, individual accusations that it was wholesale energy trading that led to high prices for consumers. Overall, however, the recognition that the EU internal electricity market is a success story seems to prevail; in particular, members of the Green group seem to fear that massive state intervention could benefit large technologies, especially nuclear power.
On the Council side, as already mentioned, Spain will play a role, but so will Poland: there, too, elections are coming up this fall, and the Polish government has already intervened robustly in the market to push down electricity prices to please its electorate. For France, it is once again a question of how to finance the maintenance and the expansion of its nuclear power fleet; the wording currently chosen in the Commission proposal concerning Contracts for Difference (CfDs) is open to both. The proposals of the German Minister of Economics, Robert Habeck, for subsidized industrial electricity prices are being followed with great attention: in principle Germany is one of the EU Member States supporting the current market design and rejecting market interventions. However, an industrial electricity price would only have a chance of being approved by the European Commission under state aid rules, if it is part of an EU-wide solution. The resulting subsidy battle, however, would probably mean the end of the EU internal electricity market, based on marginal cost prices and pan-European cross-border electricity trading.
The current Swedish Council Presidency is aiming for an agreement within the EU member states ("General Approach") by the end of June, e.g. on the occasion of the meeting of EU energy ministers on 19 June 2023. The rapporteur of the European Parliament wants to present his draft report as early as 12 May 2023; the other MEPs could submit amendments to this by 23 May 2023. The votes on the report and amendments could take place on 19 July 2023 (for the reform of REMIT on 7 September 2023). A vote in the Plenary of the European Parliament could follow on 11 September 2023. On this basis, compromise negotiations, the so-called Trilogues, could then start in September. The rush is understandable, as on the one hand it is unclear how electricity prices and above all gas prices will develop in autumn; on the other hand, the upcoming elections for the European Parliament in spring 2024 will bring the EU legislative processes to a standstill at the end of the year.