22.05.2024

The Council of the EU approved the new regulations for the electricity market

The European Council announced the adoption of a new regulatory package establishing more stable and predictable energy prices while ensuring efficient market functioning and avoiding distortions in the internal market. Common market rules for renewable gas, natural gas and hydrogen have also been approved.

Consumers across the EU will now be able to benefit from more stable energy prices, less dependence on the price of fossil fuels and better protection against future crises. Member States will strengthen their measures to protect vulnerable and energy-poor customers, including a ban on blackouts. The reform also further promotes energy sharing schemes.

The EU Council's announcement marks the last major step towards final adoption of the new regulation following the approval of the legislation in April by the European Parliament.

More stable and predictable energy prices

Power Purchase Agreements (PPAs) are long-term contracts that provide stability for customers and investors. The updated rules encourage their adoption and reduce unnecessary red tape and fees. In line with their decarbonisation plans, Member States may further support investment in renewable energy sources under power purchase agreements, including through the establishment of guarantee schemes.

EU countries will also use two-way contracts for difference (CfD) or equivalent schemes with the same effects for their direct price support schemes to support new investment in electricity production and ensure that electricity prices are less affected from price volatility in fossil fuel-based markets.

Under the bilateral contract for difference with a public entity, power producers will be protected by a minimum remuneration, while ensuring that they operate and participate effectively in electricity markets and respond to market circumstances. In periods of high prices, they will have to pay out the excess revenue, which can then be distributed to end customers (while avoiding distortion of competition and trade in the internal market), be invested in reducing the cost of electricity to end customers or used to develop distribution networks.

Bilateral contracts for difference can be applied to investments in new electricity generation facilities based on wind power, solar power, geothermal power, tankless hydro and nuclear power.

Phase out fossil fuels

The new regulation supports the establishment of common internal market rules for renewable and natural gas and hydrogen and imposes national grid development plans based on joint scenarios for electricity, gas and hydrogen.

According to the Commission, the regulation will help the uptake of renewable and low-carbon gases by facilitating connection and access to the existing gas network. This will allow consistency in the assessment of the emission footprint of different gases to enable Member States to compare and take them into account in their energy mix.

The new regulation also includes provisions aimed at phasing out fossil fuels, with long-term contracts for raw fossil gas aimed at not continuing beyond 2049, and rules supporting the promotion of renewable and low-carbon gases – particularly hydrogen – in coal and carbon-intensive regions, including tariff rebates for renewable and low-carbon gases, as well as the creation of a voluntary mechanism to support the hydrogen market.

When will the regulation enter into force?

The regulation will enter into force six months after its publication in the Official Journal of the European Union, and member states will have two years to adapt their national legislation to the new regulations.

Once heavily dependent on Russian supplies, Europe is now moving towards the electricity and gas markets of the future, where there is no room for Russian gas and where renewables, clean gases and hydrogen play a central role," said EU Energy Commissioner Kadri Simson after the adoption of the changes.