The new market design in the European Union (EU) electricity market[1] aims to incentivize the clean energy transition, ensure energy security, and maintain affordability. It is part of the ‘Clean energy for all Europeans package’ that involves reforms to the rules for electricity market design, including transparency, monitoring, and open competition to allow consumers to choose energy suppliers and keep prices in check. The reform streamlines Power Purchase Agreements (PPAs) and introduces two-way Contracts for Difference (CFDs). The design also focuses on balancing the market for all participants and increasing the amount of energy traded in long-term contracts. The objective is to create a modern framework for the transition towards cleaner and more sustainable energy, while providing a stable environment to stimulate investment in the energy industry.
The main theme is a long-term vision to support renewable electricity. The volatility of the European electricity market does not encourage important consumers such as industries or administrations to conclude contracts for green electricity or invest in renewables production infrastructures. Two legal tools stand out: the power purchase agreements and the two-way contract for difference.
The PPAs which already exist need to be refined to be more usable by a diversity of economic actors by removing unjustified barriers and disproportionate or discriminatory procedures or charges. It is a contract between an electricity producer and a purchaser outlining the terms and conditions for the sale and purchase of electricity, generally used to guarantee the origin of electricity, and fixing its purchase price. The PPAs are usually restricted to major companies because the needed guarantees are too high. Indeed, productors are at risk if the buyer defaults on its long- term payment obligations. The Member States have to imagine a guarantee scheme to avoid this payment default risk. But in France, a guarantee fund already exists for PPAs to secure a contract volume of installed capacity of 500MW[2].
The agreement requests the Member States to facilitate the aggregation of demand for PPAs from customers who are individually too small to be offered an attractive offer. Also, in this vision of a European electricity market, the Member States need to promote cross-borders PPAs.
The two-way contract for difference is a way to support renewable electricity facilities by a contract. This contract between an electricity producer and a public entity guarantees a minimum income in case of a lower electricity price and an upward limitation. The new agreement sets up an obligation to use the two-way contract for difference to support new power generating facilities.
These contracts allow the producers and companies to invest in new renewable electricity production units with trust, without losing benefits of the European electricity market.
[1] Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Regulations (EU) 2019/943 and (EU) 2019/942 as well as Directives (EU) 2018/2001 and (EU) 2019/944 to improve the Union’s electricity market design, 19 october 2023, Council
[2]Signature du 1er contrat de garantie relatif à l’approvisionnement en électricité de long terme pour des industriels lorsqu’ils sont adossés à des installations renouvelables, BPI France, 12 octobre 2023
