The EU channels me

The new energy market paper gets stuff right

The draft of the electricity market reform has leaked and it is music to my ears…

Power purchase agreements and contracts for difference not only provide consumers with stable prices, they also give renewable energy suppliers reliable revenues. This lowers their financial risk and greatly reduces their cost of capital. This creates a virtuous circle where stable revenues lower costs and boost demand for renewable energy.

and

Where Member States decide to set out direct price support schemes for new investments in low carbon, non-fossil fuel electricity generation to achieve the Union’s decarbonisation objectives, they should be structured to include, in addition to a revenue guarantee, an upward limitation of the market revenues of the generation assets by way of two-way contracts for difference or other equivalent contractual formulations.

This would ensure that revenues of producers stemming from new investments in electricity generation which benefit from public support become more independent from the volatile prices of fossil fuels-based generation which typically sets the price in the day-ahead market. (…)

Member States should ensure that support schemes do not constitute a barrier for the development of commercial contracts such as PPAs. (…)

Direct price support schemes in the form of two-way contracts for difference or equivalent contractual formulations will provide an additional source of revenues for Member States in periods of high energy prices. To further mitigate the impact of high electricity prices on the energy bills of consumers, Member States should ensure that the revenues collected are passed on to all final electricity customers, including households, SMEs and industrial consumers, based on their consumption.

It is quite heartening to read this after years of focus on “competition”, short term prices and the hunt for “State subsidies”, which resulted in the absurd zero-bid auctions in the Netherlands and Germany.

While this does not resolve the permitting obstacles, it at least ensures that EU views on markets design are less structurally hostile to renewables (with pro-renewables measures awkwardly plugged into a gas-focused market design), and that’s a major step forward.

(If you’d like a copy of the leaked paper, feel free to email me)