The European Parliament has greenlit a comprehensive overhaul of the European Union's electricity market, aiming to make it more stable, affordable, and sustainable. The measure, comprising a regulation and a directive previously agreed upon with the Council, was ed with a strong backing of 433 votes in favor, 140 against, and 15 abstentions for the regulation, and 473 votes in favor, 80 against, and 27 abstentions for the directive. 49j1i

One of the key highlights of this reform is the protection of consumers against volatile prices. of the European Parliament have ensured that consumers will have the right to access fixed-price or dynamic price contracts, as well as receive crucial information about the options they subscribe to. Additionally, it is stipulated that suppliers cannot unilaterally alter the of a contract.

This measure also guarantees protection for vulnerable customers, prohibiting suppliers from cutting off electricity supply during disputes between them and consumers.

To incentivize investment in energy, the legislation introduces the so-called "Contracts for Difference" (CfDs), or equivalent schemes with similar effects. Under a CfD, a public authority compensates the energy producer if market prices fall too low, but collects payments from them if prices are too high. This tool will apply to all investments in new electricity production, whether from renewable or nuclear energy.

Furthermore, a mechanism is established to declare an electricity price crisis. In situations of very high prices and under certain conditions, the EU can declare a regional or EU-wide electricity price crisis, allowing member states to take temporary measures to set electricity prices for SMEs and energy-intensive industrial consumers.

Lead rapporteur Nicolás González Casares (S&D, ES) remarked, "This reform places citizens at the forefront of electricity market design. The text includes measures to protect citizens, especially the most vulnerable, and to accelerate the deployment of renewable energy sources. The Parliament has taken a step forward in democratizing energy, creating a market design that addresses the shortcomings exposed by the energy crisis. All consumers, including micro, small, and medium-sized enterprises, will have access to long-term, affordable, and stable prices."

Following Parliament's approval, the Council also needs to formally adopt the legislation for it to become law.

Background: Energy prices have been rising since mid-2021, initially in the context of the post-COVID-19 economic recovery. However, energy prices rose sharply due to gas supply problems following Russia's war against Ukraine in February 2022. High gas prices had an immediate effect on electricity prices, as they are linked under the merit order system, where the most expensive (usually fossil fuel-based) energy source sets the overall electricity price.