German renewables industry criticises EU electricity market reform proposal

Note: This article will be updated as more reactions are published. For background on the reform proposal, also read the Q&A: Making the EU’s electricity market fit for a climate-neutral future.

Germany’s renewable energy industry has said a proposed reform of the design of the EU’s electricity market, presented on 14 March by the European Commission, “goes too far”, and called for the delegation of more decision-making power to the national level. Other German reactions were less critical, with industry association BDI and energy industry lobby group BDEW welcoming the fact that no drastic changes to the system were proposed.

“The EU proposals go too far and massively interfere with the member states' systems,” said BEE head Simone Peter in a statement. The lobby group focussed criticism on the proposed obligation that future subsidies for low-carbon electricity generation would have to be made through so-called two-way Contracts for Difference (CfDs).

“For some member states, this form of marketing may bring advantages,” said Peter. “This is not the case for Germany," as the mechanism which skimmed exceptionally high revenues off of electricity producers in the energy crisis had shown. "It generated high implementation costs for energy producers and severe market distortions, but the desired price-reducing effect failed to materialise,” she added. Peter called on the German government to advocate for a voluntary solution for two-way CfDs in the further legislative process.

Two-way Contracts for Difference are agreements between an electricity generator and a public body (in this case the state), where a price of electricity (which makes economic sense for a generator) is pre-arranged - usually by a competitive tender. If the price of the electricity sold on the market is lower than the pre-arranged price of the contract, the state pays the difference to the generator (thus ensuring a stable revenue). However, if the market price of electricity is higher than the pre-arranged price, the generator has to pay those profits back to the state. In short, CfDs are a two-way payment process that ensures generators receive a certain level of remuneration for the electricity produced while preventing disproportionate revenues.

In Germany, renewable energy producers enter auctions to build facilities and receive support. Here, they receive the so-called market premium, provided for in the Renewable Energy Act (EEG). The premium covers the difference between the price agreed through auctions and the market price. However, generators do not have to pay back revenues if the market price is above the agreed price.

The Commission presented its proposal after a meeting in Strasbourg. It says the reform aims to speed the expansion of renewables and the phase-out of gas, decouple consumer bills from volatile fossil fuel prices, better protect consumers from future price spikes and potential market manipulation, and make the EU's industry clean and more competitive.

Holger Lösch, deputy managing director of industry association BDI

“The EU does well to optimise the electricity market with a sense of proportion,” the BDI’s Lösch said. “It must not undermine market principles of the electricity market out of crisis mode.” He said the industry welcomed the fact that the EU Commission is focusing on an increased role for longer-term supply contracts (PPAs) and two-way contracts for differences in order to make consumer prices less dependent on price fluctuations of fossil energies in the future and to stimulate investments in clean technologies. “However, they must remain voluntary in nature and be designed in such a way that medium-sized companies can also make use of them.”

Kerstin Andreae, head of energy industry association BDEW

Energy industry association BDEW welcomed the drive to reform the EU electricity market, and said that refraining from drastic changes is the right move by the European Commission, because the design worked despite the challenges. “The high electricity prices are not due to a failure of the internal electricity market,” said Andreae. She argued they were caused by a tightening of energy supply from Russia. “Approaches to energy price stabilisation and security of supply should therefore be clearly separated.”

Andreae said the core of a long-term reform of the European electricity market should be to secure the necessary investments in renewable energies. The proposals on financing the expansion of renewable energies, for example through PPAs and CfDs, went in the right direction, but “need a more detailed analysis in the coming weeks,” she said.

Simone Peter, head of the German Renewable Energy Federation (BEE)

“The EU proposals go too far and massively interfere with the member states' systems,” said BEE head Simone Peter in a statement. “We reject the mandatory introduction of two-way contracts for difference (CfD) at EU level. In the further legislative process, the German government should advocate for a voluntary solution. For some member states, this form of marketing “may bring advantages,” said Peter. “This is not the case for Germany” as the mechanism to skim off exceptionally high revenues of electricity producers in the energy crisis had shown. “It generated high implementation costs for energy producers and severe market distortions, but the desired price-reducing effect failed to materialise,” she said and called for the design of the electricity markets to take place at the national level.

Peter criticised that the Commission aimed to recognise nuclear energy as eligible for support, while not doing the same for bioenergy. “Nuclear power is an expensive, unsafe, high-risk experiment that also feeds in too inflexibly and is thus incompatible with the fluctuating sources of wind and solar,” she said.

German Association of Local Utilities (VKU)

Local utilities association VKU said it was “relieved” that the Commission stayed committed to the merit-order system, what it called the fundamental mechanism the market follows. “The current market model has served the integration of the European electricity market well and should continue to be seen as an essential element for effective and efficient pricing and thus for the deployment planning of generation capacities," said VKU head Ingbert Liebing.

The VKU welcomed efforts to facilitate the deployment of PPAs, and that the Commission aims to help member states introduce ‘green and flexible’ capacity mechanisms. “In order for municipal utilities to be able to maintain a secure supply despite volatile renewable energies, it is of central importance that not only the energy [sic] produced, but also — to a much greater extent and in a different way than in the past — the provision of reliable generation capacities is appropriately rewarded," said Liebing. He argued that companies would otherwise not make investments in the construction of power plants and storage facilities that only run for a few hours a year.

Martin Theuringer, managinig director of German Steel Federation (WV Stahl)

The German steel industry lobby group WV Stahl criticised that the proposal did not supply a solution regarding competitive electricity prices for industry. “Only with affordable energy can companies successfully shape their path to climate neutrality,” said managing director Theuringer. “We therefore need an industrial electricity price as soon as possible. This should be worked on now with high priority.”

Austrian climate minister Leonore Gewessler

Leonore Gewessler, Austria’s climate minister, said the proposal contains small steps in the right direction but is not enough to spread the benefits of renewables to consumers, reported Euractiv. While Austria agrees that “on the way to a renewable, climate-friendly electricity system, pricing must also be improved” and “people should also benefit from cheap green electricity from Europe,” the reform “falls short of expectations,” said Gewessler.

Vienna will now look at the proposal and “call for concrete improvements”, including decoupling electricity prices from volatile, high gas prices. “This is certainly not an easy task – but it is necessary. The Commission is challenged here and must not shirk its responsibility,” Gewessler also said.

Michael Bloss, Green Party member of the European Parliament

Green MEP Bloss called the proposal a “gift for the nuclear industry,” as it supplied “massive subsidy promises” to the industry, “even though it is not compatible with a future, flexible electricity system.” Bloss called for more possibilities for low-income households to get cheaper electricity contracts, and to rather empower the people to produce and store electricity than support “fossil corporations”.