Europe is waiting for the reform of the electricity market: what exactly will it be?

European Commission President Ursula von der Leyen (on the far right in the picture) said the electricity market needs reform. The photo was taken on Tuesday at the Energy Security Summit in Denmark.A photo: Shutterstock

The EU is developing an emergency plan for the reform of the electricity market, writes Business day.

With gas prices up nearly tenfold since the start of the year and electricity prices breaking records almost daily, even the most skeptical EU member states are beginning to recognize the need to intervene in the market.

What is the essence of the reform?

On September 9, EU energy ministers will meet to discuss electricity market reform.

Some sort of price cap is likely to be introduced as a short-term measure, Killian O’Donoghue, a spokesman for the Eurelectric industry association, told Politco. According to him, gas prices are very strongly linked to electricity prices, and getting rid of this dependence would be of great benefit.

A similar system is already in place in Spain and Portugal. These countries have received permission from Brussels to temporarily set a price ceiling. During the year, gas in the countries will cost no more than 50 euros per megawatt-hour. As a result, electricity prices have also fallen.

At the same time, exports of electricity from Spain to France increased, where the cost of electricity is higher. This means that Spanish taxpayers are helping French households, while the Spanish government is channeling taxpayer money into measures to keep prices low. In total, Spain and Portugal allocated 8.4 billion euros for these purposes.

Another option is to introduce a tax on electricity producers. Spain, Italy, Romania and Greece have already done so. The same idea is gaining momentum in Germany, although it causes tension in the ruling coalition.

European Commission President Ursula von der Leyen also wants to make long-term changes. For example, one idea is a system whereby electricity producers make bids based on their costs. Renewable energy producers have much lower costs than fossil fuel producers. At the same time, it is likely that in this case, renewable energy producers will only offer a slightly lower price than gas sellers, so prices will not fall significantly.

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