Agreement on the proposal had been delayed for months while France and Germany sought a compromise over contracts for difference (CfDs) – long-term contracts concluded by public entities to support investments, which top up the market price when it is low and ask the generator to pay back an amount when the market price is higher than a certain limit, in order to prevent excessive windfall profits.

France had wanted nuclear power, which accounts for some 70% of the country’s energy production, to be included in the CfDs, while Germany felt this would provide an unfair competitive advantage.

The reform aims to make EU electricity prices less dependent on volatile fossil fuel prices and provide long-term market stability, shield consumers from price spikes, accelerate the deployment of renewable energies and improve consumer protection. The proposal, which still needs to be negotiated with the European Parliament, is part of a wider reform of the EU’s electricity market design which also includes a regulation focused on improving protection against market manipulation through better monitoring and transparency (REMIT).

Commenting on the announcement, Teresa Ribera Rodríguez, Spain’s Minister for the Ecological Transition and the Demographic Challenge, said: ‘I am proud to say that today we have taken a strategic step forward for the future of the EU. We have achieved an agreement that would have been unimaginable only a couple of years ago. 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.’

The reform of the EMD aims to steady long-term electricity markets by boosting the market for power purchase agreements (PPAs), ‘removing unjustified barriers and disproportionate or discriminatory procedures or charges’ and using measures such as state-backed guarantee schemes at market prices, private guarantees or facilities pooling demand for PPAs.

The Council agreed that two-way CfDs would be the mandatory model used when public funding is involved in long term contracts, with some exceptions, and would apply to investments in new power-generating facilities based on wind energy, solar energy, geothermal energy, hydropower without reservoir and nuclear energy. This would provide ‘predictability and certainty’ it said.

The Council also added flexibility as to how revenues generated by the state through two-way CfDs would be redistributed, with revenues to be redistributed to final customers and also used to finance the costs of the direct price support schemes or investments to reduce electricity costs for final customers.

Member states also proposed simplifying and streamlining the approval procedures for capacity mechanisms, support measures that member states can introduce to remunerate power plants in order to guarantee medium and long-term security of electricity supply.

Clarifications to the provisions on customer protection were also introduced, establishing free choice of a supplier and the possibility of accessing dynamic electricity prices, fixed-term, and fixed-price contracts. In addition, the Council agreed to stricter rules than previously for suppliers in their price-hedging strategies to shield customers from variations on wholesale markets, and to protect vulnerable customers from disconnections and ensure continuity of supply.