The European Commission has proposed a revamp for the electricity market in the European Union, in a bid to protect consumers from price surges and likewise increase the use of fixed-price power contracts, while hastening the transition to renewable energy.

The proposal follows a pledge made by the EU last year to overhaul the electricity market after the record increase in power prices that were caused by the cuts to Russian gas supplies following Moscow’s invasion of Ukraine.

The proposal includes incentives for long-term contracts which provide stable electricity prices and protect consumers more when it comes to being exposed to changes in fossil fuel prices.

Contracts for difference (CfDs), which pay generators a fixed “strike price” for their electricity, are looking to be used now for state support with new investments in wind, solar, hydropower, geothermal, and nuclear electricity.

Countries would also need to offer state guarantees to encourage power purchase agreements, when electricity is bought directly from a generator.

The EU has also proposed allowing governments to temporarily fix electricity prices if energy prices were to surge to extreme levels.

Other changes are aimed at improving consumer protection, such as allowing bill-payers to request fixed-price contracts from large electricity suppliers and obliging countries to now protect vulnerable consumers from being disconnected by suppliers in the case they can’t pay their bills.

Ambitious goals ahead

The proposals aim to reduce the use of gas in Europe’s energy mix while supporting investments in renewable energy, to reduce reliance on Russian fossil fuels and meet climate change goals.

Countries would be able to launch support schemes for energy storage and “demand response”, where consumers are paid to adjust their power use to balance the grid, reducing the need for gas plants to balance the grid.

EU countries and the European Parliament will be required to negotiate and approve the proposed reforms. The Commission has opted for scaled-back changes to the current method of setting prices in wholesale energy markets, which has been retained despite some calls for radical redesigns.

France has expressed support for the proposal, including CfDs for investments in new and existing nuclear power plants. However, Denmark, Germany, and Latvia have warned that major changes could deter investors, while Greece has called for a more radical redesign to prevent gas prices from triggering surges in electricity prices.