Reform of the Electricity Market, the coming news

The Reform of the Electricity Market prepares the EU against the risk of crisis

The reform of the European electricity market sees the light. With the latest approval, the one voted yesterday by the EU Council, both the Regulation on the design of the electricity market and the Directive “improvement of the market“, are ready to conclude their legislative process to enter into force after publication in the Journal. Several innovations will become part of the Community electricity system to make energy prices more stable, improve protection from future crises.

“With the adoption of the electricity market reform, we are empowering consumers, ensuring security of supply and paving the way for a more stable, predictable and sustainable energy market,” he commented at the end of the vote, Tinne Van der Straeten, Belgian Minister for Energy, who holds the EU Presidency. Let us look in detail at the changes made by the new Rules of Procedure.

Regulation on the design of the electricity market, the CfD and PPA

One of the first major innovations of the Electricity Market Design Regulation concerns the introduction of two-way contracts for difference (or equivalent systems with the same effects) as direct price support schemes. CfDs, to use the English acronym, would apply to investments in the new generation of electricity from the sources:

  • wind power;
  • solar;
  • geothermal;
  • hydroelectric without tank;
  • nuclear.

The measure provides that the revenues from these contracts are distributed to final customers or used to finance direct price support schemes or interventions aimed at reducing electricity costs for households and businesses. However, the rules on CfDs will not apply for three years after the entry into force of the Regulation.

To ensure price predictability, Member States may also use electricity purchase and sale agreements, specifying the bidding zone where the delivery takes place. In this context, the European Commission will assess the potential and sustainability of one or more Union market platforms for such agreements to be used voluntarily.

The leveller product of the load tips

In addition to price stability, the “load point leveling product” is introduced, a market-based product by which market participants can provide system operators with leveling of load points. How will it work? In the event of a new energy price crisis, Member States may require system operators to propose the acquisition of such products in order to reduce demand during peak hours. The purchase will take place through a competitive tender procedure with selection based on the lowest cost. “The minimum bid – reads the text of Reform of the electricity market – is not more than 100 kW, even through the aggregation and related contracts can not be concluded more than a week before its activation. In addition, activation of the leveller product shall not reduce cross-zonal capacity or lead to the start of a fossil generation”.

Day-ahead and intraday markets

The measure continues on the intraday markets, focusing on renewable energy producers. In detail, the text provides that the closing time of the intraday cross-zonal market is shortened and brought closer to real time to maximize the opportunities for market participants to trade in the electricity deficit or surplus and to contribute to better integration of variable RES into the electrical system. “From 1 January 2026, the closing time of the intraday cross-zonal market must fall no later than 30 minutes before the real-time“, reads the Regulation, which introduces some exceptions to the rule.

In addition, the NEMOs, that is the designated operators of the electricity market (in Italy, for example, the GME), will have to offer to the sale on the day-ahead and intraday markets products of a sufficiently small size, with minimum offers of 100 kW or less, to allow the effective participation of demand management, energy storage and renewables on a small scale. Including direct customer participation, including through aggregation.

It also introduces the concept of regional virtual hubs for the futures market, a non-physical region covering more than one bidding zone for which a reference price is set based on a specific methodology.

Electricity Market Reform, focus on Flexibility and Capacity Mechanisms

Finally, the Regulation seeks to make capacity regulation mechanisms a more structural element of the electricity market and introduces some derogations from the application of the CO emissions limit for already authorised mechanisms, provided they are duly justified. It includes an indicative national target for non-fossil flexibility to be drawn up by each Member State, including demand management measures and energy storage. “Where investments in non-fossil flexibility are insufficient to meet the national indicative target […] Member States may apply non-fossil flexibility support schemes in the form of payments for available capacity“.

Read here the Regulation on Design of the Electric Market

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