EU plans reform to make power bills less tied to fossil fuel prices

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BRUSSELS, Jan 23 (Reuters) – Upcoming European Union proposals to overhaul the bloc’s electricity market will attempt to make consumer energy bills less tied to short-term swings in fossil fuel prices, the European Commission said on Monday.

The EU is reforming its power market to attempt to avoid a repeat of last year, when cuts to Russian gas supply drove European electricity prices to record levels, hiking bills for households and forcing some industries to close.

In a public consultation launched on Monday, the Commission laid out numerous options to overhaul the way power plants sell electricity, as part of the market reform it will propose in March.

“We need to make the electricity market design fit for the future, allowing it to deliver the benefits of affordable clean energy to everyone,” EU energy commissioner Kadri Simson said.

The EU proposal will aim to expand Europe’s use of long-term contracts that provide power plants with a fixed price for their electricity – “contracts for difference” (CfD) and power purchase agreements (PPA), the Commission said.

Expanding these types of contracts would create a buffer between energy consumers and volatile prices in short-term energy markets, yielding more stable energy bills for households and companies, it said.

This could be done through more public tenders for renewable energy that include a PPA, or state-backed credit guarantees for companies to sign PPAs.

The EU could also incentivise CfDs, either by introducing specific EU rules for CfDs and leaving it up to national governments to decide to use them.

More radical changes, like requiring all new power plants that receive state support to sign CfDs, were also a possibility, the Commission said.

Another option could be to allow national governments to impose CfDs on certain existing power plants, although the Commission said that would come with risks.

“This could risk the necessary investments in this type of generation, increase the costs of those investments and as a result be counterproductive,” it said.

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