Future of the electricity market The EU countries are fighting over the price of electricity

Germany is once again on the brakes On March 14, the European Commission intends to present its legislative proposal for a reform of the European electricity market, which many countries have been demanding for a long time.

"But I don't expect it, and I would also think it would be wrong if very extensive market interventions came like a shot from the hip," said Economics Minister Robert Habeck just now in Berlin "I think this discussion will only get going at full speed after the European elections" - i.

E In Autumn Rather Than Summer 2024

This threatens a renewed struggle for the EU gas price cap: the majority of EU states are pushing for far-reaching interventions in the market Germany, the Netherlands and a handful of small (Nordic) members - assisted by the European Commission - are trying to to prevent the worst.

France in particular does not want to wait Since electricity prices hit record highs in the summer of 2022 and green power producers made huge profits, Paris has been pushing for a fundamental reform of the “electricity market design”.

No EU summit, no meeting of energy ministers without a word from Paris The most expensive source of energy determines the price It was not just the French who learned what the merit order system was.

It states that the most expensive energy source used determines the price In other words: If there is enough wind and sun and the systems are running at full speed, electricity is cheap.

Even negative prices are possible But if coal or gas-fired power plants have to be started to fill gaps, it gets expensive - especially when the price of gas keeps reaching new heights.

At the time, the simplest answer seemed to be for many countries such as France, Spain and Greece to abolish the merit order in order to decouple electricity and gas prices Many markets work like this.

The system also has advantages Because it sets the right incentives.

Investing in wind and solar power is only worthwhile if prices are high in the meantime – especially since 90 percent of the costs are incurred during the construction phase In addition, the producers do not keep any other power plants ready for dark doldrums if they do not pay off when needed.

The Federal Government and the EU Commission therefore brought a different solution into play Skimming off operators' excess profits The EU initially only decided to temporarily skim off "excess profits" from the operators of green electricity and nuclear power plants.

At the same time, Commission President Ursula von der leyen promised a fundamental reform of the electricity market design and did not take the option of abolishing the merit order off the table In the meantime, the debate – also because of falling prices – has developed further.

None of the numerous position papers from EU states mention the abolition of the merit order The Commission shifted the focus in the consultation on the proposal launched at the end of January.

"It's gratifying that this unfortunate debate has come to an end," says energy economist Lion Hirth from the Hertie School in Berlin But that doesn't mean that far-reaching interventions in the French and Spanish markets are off the table.

They just start somewhere else long-term contracts between the state and producers (Contracts for Difference, CFD) are now supposed to bring the solution.

Better calculable income for investors The idea: the state agrees a price or price corridor for electricity supplies with the producers for a period of around 20 years If the market price - the spot market for electricity continues to function as before - is below the "exercise price", the state pays the producer the difference.

If the market price is higher, the producer pays to the state The charm for investors is that they can calculate their income better.

The state assumes the risk of the investment, so it subsidizes it The tool is already in use.

Great Britain is regarded as the “inventor” There are CFDs in nine EU countries from Denmark to France to Spain.

The federal government is also open In a letter presented together with the Netherlands and five smaller EU countries, she advocates such long-term contracts to promote the expansion of green electricity.

"By 2030, we must have achieved three to four times the expansion rate of wind and solar power," says Matthias Buck from the think tank Agora Energiewende "It's about a further development of the Renewable Energy Sources Act," says Hirth.

A further development that no longer only sets minimum purchase prices, but also maximum prices That's why the green electricity manufacturers were up in arms, according to Berlin.

Simone Peter, President of the Federal Association of Renewable Energies (BEE), speaks of a "planned economy" German plans do not go as far as French plans The German plans are not nearly as radical as those of Spain or France.

For Berlin, the long-term contracts are just an offer "CfD should be voluntary, not be introduced retrospectively and focus on investing in renewables," the joint letter reads.

"CfD are an important option to ensure the rapid expansion of green electricity," says Buck In order for Germany and Europe to be able to achieve the expansion targets for renewable energies, market-based expansion is also needed, for example via long-term power purchase agreements between producers and industry.

France or Spain, meanwhile, want to prescribe binding contracts, also for existing plants, including nuclear power They also want to intervene more with the price.

There is no room for market-based expansion This actually harbors the risk that the right signals for the expansion of wind, solar, hydropower and bioenergy plants will no longer be given.

Hirth estimates that while the German model accounts for 5 percent of electricity generation, the French model accounts for around 90 percent That would allow the EU states to fine-tune the expansion of green electricity and thus adapt it to the existing (nuclear) plants, which comes closer to the French idea of ​​​​industrial policy than letting the market prevail.

In addition, the CfD for Paris and Madrid are above all a means of stabilizing consumer prices at a low level Exercise price to be adjusted annually France and Spain are dealing with a “kind of expropriation” of the electricity producers, as Hirth puts it.

Fits to, that France wants to adjust the exercise price annually - which is hardly compatible with the idea of ​​planning security for investors Ultimately, the French model would be continued skimming of excess profits under a different name.

Although this goal is not completely foreign to Berlin either Buck assumes that by 2030, even under the German model, a large part of the electricity generation will be covered by long-term contracts, thus limiting excess profits.

As good as it sounds at first based on the experience of the past year, stabilizing prices would also have negative effects This would largely eliminate the incentive for consumers to counteract price peaks caused by supply bottlenecks through targeted energy saving.

But that is exactly what is considered indispensable in a power grid, which increasingly relies on renewable sources This is precisely why the EU is focusing on equipping consumers with intelligent electricity meters that allow such fine control.

The difficult task for the Commission now is to come up with proposals that are acceptable to all sides In essence, she shares the German concern about excessive market intervention - especially since there was no time at all for a thorough analysis of the consequences.

Hirth warns that there is a great danger of collateral damage from an ill-considered reform The problem is: von der leyen has raised great expectations with the promise of fundamental reform.

And Germany, the Netherlands and the other signers of the letter have no blocking minority France, Spain and others are stepping up the pace.

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