14 December 2023
EU electricity market design deal will help restore investment certainty
Last night the European Parliament and the Council reached an agreement on the EU’s electricity market design revision. The deal is a good compromise which will help restore the confidence of renewables investors. Crucially it avoids permanently enshrining inframarginal revenue caps in the EU’s electricity market design.
Europe needs more renewables as fast as possible. The European Commission wants wind energy to grow to 420 GW by 2030, up from just over 200 GW today.
During the period of high electricity prices in 2022 the European Union allowed National Governments to apply emergency measures which seriously undermined this very investment certainty. Yesterday’s agreement on the electricity market design revision safeguards the integrity of the EU electricity market and avoids lasting and uncoordinated power market interventions. Revenue caps on inframarginal generation will not become a permanent feature of the EU’s electricity market design.
“National revenue caps on wind and other renewables were a clear policy failure. They fragmented the European market and damaged investor confidence just when we needed to massively scale-up renewables investments. It is very good the EU is doing away with these revenue caps”, says Pierre Tardieu, Chief Policy Officer at WindEurope.
The EU’s electricity market design rules safeguard all routes to market for renewables. Corporate Power Purchase Agreements (PPAs), Government Contracts-for-Difference (CfDs) and the fully merchant route. Having all these routes to market, and allowing their combination, e.g. combining CfDs and PPAs is critical to the cost-effective scale-up of wind energy.
The agreement also allows for a compensation principle that will enable offshore wind developers to take final investment decisions for hybrid offshore wind farms. These hybrid wind farms – with grid connections to two or more countries – are a good thing. They save space and money by pooling generation and transmission assets. They improve energy flows between countries and reduce the environmental impact of offshore grid development.
There’s no energy transition without transmission. The agreement supports the much-needed expansion and optimisation of Europe’s electricity grids. This includes good provisions on grid tariffs, anticipatory grid investments, flexible connection agreements and non-fossil flexibility. Together they will help speed up the connection of new wind farms, currently a massive issue in many countries. The good provisions in the electricity market design will need to be underpinned by a rapid implementation of the excellent provisions under the EU Action Plan for Grids.
Before entering into force yesterday’s agreement now needs to be formally adopted by the Council and the Parliament. The Council will do so in early 2024, and the Parliament in April 2024.
