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EU proposes energy market reforms to prevent price spikes

March 14, 2023

The goal of the change is to expand the use of long-term contracts to protect consumers from severe price hikes. The European Commission also aims to make the bloc's supply less dependent on fossil fuels.

EU flags in front of European Comission building in Brussels, Belgium
The European Commission has unveiled proposals aiming to protect consumers from energy price increases and reduce reliance on fossil fuelsImage: YVES HERMAN/REUTERS

The European Commission on Tuesday proposed changes to EU electricity market rules.

The goal of the change is to expand the use of long-term contracts to protect consumers from severe price spikes and to make energy bills "less dependent on volatile fossil fuel prices."

Last year, energy prices in the bloc soared amid reduced oil and gas supplies from Russia.

European Energy Commissioner Kadri Simson said: "Tight global supply and Russia's manipulation of our energy markets has left many consumers facing massive increases in their energy bills."

Simon said the bloc would announce further steps on joint gas buying on Wednesday. She added that the bloc is preparing a proposal to cut gas use by 15% during winter months.

What are the proposals?

The European Commission is aiming to secure long-term electricity contracts that provide power at a stable price to consumers.

EU member states are to guarantee a minimum power price to generators for all new investments that require subsidies. Revenues above a set threshold are to be funneled back to consumers, according to a press release.

Such revenues would not apply to generators powered by fossil fuels.

The proposal outlines public guarantees that aim to make long-term contracts signed between power producers and customers more viable.

The commission said it aims to strengthen the rights of end users, giving them the right to choose between suppliers providing both fixed-price and dynamic contracts, as well as the possibility of acquiring more than one supply contract.

The proposals include measures to manage varying demand, with more expensive sources like gas added to the mix at times of higher demand. The comission hopes that this measure will encourage investments in renewables.

EU Commission Vice-President Frans Timmermans said of the measure that "renewables are our ticket to energy sovereignty and ending our dependence on fossil fuels."

EU to 'decouple' gas and power prices

Energy prices in Europe are at present set by the final generator needed to meet demand. Since the final generator is often a gas plant, spikes in gas prices can have a substantial effect on overall energy prices.

Last year, the bloc presented the reforms as a way to "decouple" gas and power prices.

Some member states, such as Spain and France, had called for wider-reaching reforms of the energy market.

Countries like Germany, Denmark and Latvia have warned against radical reforms, arguing that they could scare off investors.

EU member states and the bloc's parliament must negotiate and approve the final changes.

sdi/ar (Reuters, dpa, AFP)