Yesterday, the European Parliament’s Committee on Industry, Research and Energy (ITRE) formally agreed its position on the ongoing EU electricity market design revision, largely backing the European Commission’s proposal for a targeted reform. The Committee voted to maintain the merit order system and to avoid inframarginal revenue caps which fragment the internal energy market and undermine investor confidence. Crucially, the agreement allows for different routes to market for renewable electricity: Contracts for Difference, renewable Power Purchase Agreements, and merchant investments.
The EU is currently debating a revised electricity market design against the backdrop of the Russian invasion of Ukraine and surging electricity prices across Europe. The European Commission has proposed a targeted reform this March. The reform aims to end the investment uncertainty in electricity markets and to accelerate the build-out of home-grown and competitive renewables. Yesterday, the European Parliament’s ITRE Committee voted on its position for the reform.
Reminder: What’s at stake?
The EU is raising its renewables target for 2030 to at least 42.5%. For wind, this means doubling the current installation rate to around 30 GW/year. Last year the EU built only half of that. And Europe invested only €17bn in new wind farms in 2022, the worst annual investment figures since 2009. Only 10 GW of new wind farm projects reached Final Investment Decisions (FID). And orders for wind turbines were down 47% year on year.
Inflation was certainly one reason. But it was critically the uncoordinated Government interventions in electricity markets which have undermined the fundamentals of the EU’s internal energy market. National interventions such as taxes, levies and revenue caps sapped investor confidence. The EU’s electricity market reform rapidly needs to restore investor confidence. Otherwise, the EU’s energy and climate targets will be out of reach.
European Parliament sticks to targeted reform
WindEurope welcomes the European Parliament’s ITRE committee yesterday’s vote sticking to a targeted reform of the electricity market design. We congratulate lead rapporteur MEP Nicolás González Casares and the ITRE shadow rapporteurs for having brokered a well-balanced report that will help restore predictable business cases for renewables.
Crucially the ITRE committee voted against enshrining in law revenue caps for inframarginal generators of electricity. This will help put an end to the patchwork of national market interventions. That’s good news to uphold the integrity of the wholesale power markets in Europe. And will help unlock stalling investments in renewables.
The ITRE committee also agreed on different routes to market for renewables: Contracts for Difference, renewable Power Purchase Agreements (PPAs), and merchant investments. Having these different routes to market is indispensable considering the huge volumes of investments that will be needed by 2030.
The ITRE committee also supported the Transmission Access Guarantees (“TAG”) which will help de-risk investments in hybrid offshore wind farms. This will clear the way for hybrid offshore wind farms – that have connections to one or more countries – to become a central building block of Europe’s offshore wind expansion. Hybrid offshore wind farms are key to building up a meshed and interconnected offshore wind grid which allows for more efficient energy flows and more coordinated approaches to grid planning.
Next steps on the reform
With the ITRE Committee’s yesterday vote, the European Parliament is almost ready to enter negotiations with the Member States and the EU Commission (trilogues) on a final deal. In parallel the 27 EU Member States have not yet finalised and agreed their negotiating mandate on the EU electricity market design revision. It is expected they will reach agreement as well in autumn for trialogues to begin. The EU electricity market design reform needs to be finalised by the end of 2023 as mandated by EU Heads of State and Government earlier this year.