EU States Approve New Electricity Market Design to Boost Renewables Deployment

The contracts for difference will apply to investments in wind and solar energy

October 19, 2023


The European Council has agreed upon a proposal to amend the European Union’s electricity market design (EMD), aiming to make electricity prices less dependent on volatile fossil fuel prices and accelerate the deployment of renewable energies.

By boosting the market for power purchase agreements (PPAs) and generalizing two-way contracts for difference (CfDs), this reform will steady the steady long-term electricity markets.

Two-way CfDs would apply to investments in new power-generating facilities based on wind, solar, geothermal, hydropower without reservoir, and nuclear energy. This would provide predictability and certainty.

The Council agreed that member states would promote the uptake of PPAs by removing unjustified barriers and disproportionate or discriminatory procedures or charges.  As member states sought the simplification of approval procedures for capacity mechanisms, the Council proposed streamlining the procedure in the current framework.

Measures may include, among other things, state-backed guarantee schemes at market prices, private guarantees, or facilities pooling demand for PPAs.

“Thanks to this agreement, consumers across the EU will be able to benefit from much more stable prices of energy, less dependency on the price of fossil fuels, and better protection from future crises. We will also accelerate the deployment of renewables, a cheaper and cleaner source of energy for our citizens,” said Teresa Ribera Rodríguez, the minister for the ecological transition and the demographic challenge.

This proposal stems from a wider reform of the EU’s electricity market design, which also includes a regulation focused on improving the Union’s protection against market manipulation through better monitoring and transparency (REMIT). This comes after a general approach on REMIT was agreed upon during the Transport, Telecommunications, and Energy Council in June 2023.

The general approach will now serve as a mandate for negotiations with the Parliament on the legislation’s final form.

Earlier this year, in another reform to EMD, the European Commission had proposed to accelerate the adoption of renewable energy to phase out gas to incentivize longer-term contracts with non-fossil power production companies.

In September, the European Parliament approved the update to the Renewable Energy Directive, which raises the share of renewables in Europe’s final energy consumption to 42.5% by 2030.