It is considered more important that the Brussels proposals are “light” so that each country can agree to them with their legal instruments
Last Tuesday, the 14th, the European Commission officially presented its proposal for the reform of the wholesale electricity market that the countries of the South were demanding, and to which the countries of the German North had reluctantly adhered. Spain, at the forefront of reformers, considers the marginal pricing system that emerged when the generation mix was dependent on fossil fuels, with raw materials subject to international price fluctuations, in nuclear power and, to a lesser extent, in hydraulics, obsolete with the interruption and growing dominance of renewable energies.
The rise in prices caused by the Russian invasion of Ukraine revealed the pernicious contagion of gas generation on other subcritical energies (nuclear, hydro and some renewables), which the Spanish government attributes to market failures that need to be urgently checked. It was fixed. Thanks to the advantage of implementing measures to control high market prices, mainly by reducing the extra revenue that the model provides to electricity companies (or reducing revenue from contracts above 67 euros). megawatt-hour or the so-called Iberian exception), Spain aspires to reverse a market trend that took a decade to consolidate, according to its supporters.
If the marginal model provided extraordinary advantages that needed to be cut, why not reform the market to avoid those cuts later? I grew up under Pedro Sanchez. It launched its proposals last February, including a regulated price for nuclear and hydropower and a mandatory contract for renewable teams, as well as promoting long-term contracting with power purchase agreements.
However, the approach of the European Commission, clearly aligned with Germany and its allies in Northern and Central Europe, immediately rejects the Spanish assumptions of a strong defense of the market that was “beneficial” to the deployment of renewables. Transition and bill paid by consumers, states the document in its explanatory memorandum. The core of the community’s proposal is long-term contracts (both price buy agreements and CFDs) and a system to provide liquidity to markets for their development.
The detailed text published by the European Commission, which amends two directives and regulations from 2018 and 2019, does not include any structural change and therefore market reform, considers the political sources. Rather, it is a continuation of the toolkit (guidelines or directives) published by Brussels in March last year, which was “elevated to the category of legal”. The aforementioned toolkit included recommendations or tools that Member States can use to combat escalating electricity prices “in exceptional circumstances”, such as the war situation in Ukraine.
In fact, Spanish critics claim, the amendments proposed by Brussels could have been approved by each country with its own legal instruments, since practically none of them are incompatible with European regulation or directive.
The issue goes much further if we take into account that many of the measures included in the commission’s text have been applied for a long time in Spain. This is the case of contracts for difference through auctions organized by the State, which guarantee a long-term price: if they don’t take it out of the market, they compensate, otherwise they put it back into the system. However, at Spain’s request, auctions will not be mandatory. In addition, if it contains a subsidy, newly invested renewable or nuclear power plants may participate, a measure designed for France, which includes the re-energization of these plants.
In addition, Spain applies other measures contained in the proposal, such as the creation of a retailer of last resort (CUR) that absorbs customers who are left without supplies due to the bankruptcy of their company; new interrupt mechanism; Distributors are obliged to offer fixed price contracts and, in that case, they must be covered by the purchase of that energy at a fixed price for one year or by a State guarantee to producers who sign PPAs (something that Ciche will already do, with US $ 200 million annually).
So far, the Spanish government has not publicly responded to a proposal far removed from its own, which, although expected, is considered more than insufficient. Both Germany and its partners, such as the Cooperation Agency for European Energy Regulators (ACER), have always made it clear that they do not want changes in the electricity market. Well, despite the severity and uncertainty of the crisis, they are of the opinion that it is still temporary and that temporary problems should not be solved with structural solutions.
The Spanish government, which seems willing to fight in the European Council and the European Parliament during the regulatory process, also has companies in the sector against it. Not by chance, last week, the Association of Large Electricity Companies (Aelec) and the Association of Wind Energy Companies (AEE) publicly expressed their support for the Brussels decision.