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Spain was one of the first countries to present a proposal to the European Commission to reform the electricity market throughout the European Union. The measure led by Teresa Ribera was immediately rejected by companies in the electricity sector. An opposition that has been joined in the last week by countries such as Germany, Italy or the Agency for the Cooperation of Energy Regulators (ACER).
ACER has issued a report on Tuesday on the open debate to change this market. The body warns of the danger of imposing contracts for difference or CfDs on all countries, which is one of the ‘star’ points of the Spanish measure.
“ACER and the Council of European Energy Regulators (CEER) they cannot support actions of the European Union that require the use of CfDs or similar types of long-term state contracts. This is because the optimal design of CfDs is not yet known and because Member States can also achieve the objective of protecting consumers through other means (for example, limiting excessive short-term inframarginal revenues, tax policy , (energy) poverty policy”, states its report.
For ACER, this type of contract may make sense as a support mechanism. But, imposing it without knowing its effects, It can generate negative effects such as affecting the spot market, limiting term liquidity, and even transferring a higher cost to the consumer.
With his measure, Ribera seeks a forward market that achieves the stability that current futures markets do not offer. His plan consists, through auctions, of contracts for differences with renewable generators, which will receive a fixed price throughout the useful life of the facilities, in a similar way to the system applied in Spain. “Consequently, heRenewable generation will reflect the average costs of the facilities, guaranteeing their profitability and transferring the discount to consumers”, explains Spain to its extent.
In this sense, the Spanish Government exposes Brussels that, those technologies that are not contestable, in which there is hardly any competition, due to scarcity of resources or lack of social and political support, such as hydroelectric and nuclear, the contract for differences will materialize at a price regulated. “This could reduce consumer prices immediately, while offering security, visibility and income stability to generators, without making extraordinary profits”, exposes the Spanish plan.
But ACER does not share this theory. The agency considers that long-term contracts for the sale of electricity or PPAs are the best alternative. “PPAs are bilateral agreements, which can be a boost to forward markets”, comment the regulators. However, your report calls for caution in this regard. “ACER and CEER refrain from actively supporting PPAs because they can have a negative impact on overall market efficiency and transparency. Given their characteristics, they are not suitable for all market participants”, they comment.
Germany wants long-term contracts
An issue that was already addressed in the letter sent by Germany and six member countries. These countries asked Brussels for a market reform that supports greater liquidity in the markets in the long term, for which it will be necessary to analyze the existing barriers, according to their letter. Additionally, they hope that complementary financial instruments such as long-term contracts for the sale of electricity will be promoted.
His letter also insisted that this change must maintain market signals and ensure a level playing field. In this sense, Germany and its partners consider that CfDs should be voluntary, not retroactive, aimed at new renewable investments, with prices set at auctions and not based on regulated prices.
Italy does not want the Ribera plan either
The General Confederation of Italian Industry (Confindustria), which integrates the main sectors of the country, has also issued a reform plan on Tuesday that also distances itself from the Spanish measure. For Italian companies the best option is not CFDs, but a ‘PPA platform’.
“The creation of a PPA Platform allows consumers to directly buy renewable energy with profiles appropriate to their needs. The PPA platform will provide medium and long-term price signals that take into account the evolution of the cost of technologies. Its added value will be to provide consumers with green energy with standard profiles that make it available even when it is not produced”, explains Confindustria.
The position of Germany and its six partners, ACER and, finally, Italy, marks a complicated scenario for Ribera’s reform plan in the electricity market. Now, the European Commission the one that has the last word after knowing the opinion of the member countries. A final verdict that is expected to be complex and, above all, slow.
