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14 Mar 2023
EU Power Market Reform: What you need to know in three pages
RWE AG (RWE:ETR), 0 | E.ON SE (EOAN:ETR), 0 | Iberdrola (IBE:BME), 0 | Iberdrola SA (IBE:MCE), 0 | Engie (ENGI:EPA), 0 | ENGIE SA. (ENGI:PAR), 0 | Endesa (ELE:BME), 0 | Endesa S.A. (ELE:MCE), 0 | National Grid plc (NG:LON), 1,054 | Centrica plc (CNA:LON), 132 | EDP - Energias de Portugal (EDP:ELI), 0 | EDP-Energias de Portugal SA (EDP:LIS), 0 | Acciona (ANA:BME), 0 | Acciona SA (ANA:MCE), 0 | Naturgy Energy Group, S.A. (NTGY:MCE), 0 | SSE plc (SSE:LON), 1,650 | Enel (ENEL:BIT), 0 | Enel SpA (ENEL:MIL), 0 | Fortum Oyj (FORTUM:HEL), 0 | Veolia Environnement (VIE:EPA), 0 | Veolia Environnement SA (VIE:PAR), 0 | Redeia Corporacion SA (RED:MCE), 0 | Enagas (ENG:BME), 0 | Enagas SA (ENG:MCE), 0 | Electricite de France (EDF:EPA), 0 | Solaria Energia y Medio Ambiente (SLR:BME), 0 | Solaria Energia y Medio Ambiente, S.A. (SLR:MCE), 0 | EDP Renovaveis (EDPR:ELI), 0 | EDP Renovaveis SA (EDPR:LIS), 0 | Orsted A/S (ORSTED:CPH), 0 | Orsted (ORSTED:CSE), 0 | Scatec ASA (SCATC:OSL), 0
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EU Power Market Reform: What you need to know in three pages
RWE AG (RWE:ETR), 0 | E.ON SE (EOAN:ETR), 0 | Iberdrola (IBE:BME), 0 | Iberdrola SA (IBE:MCE), 0 | Engie (ENGI:EPA), 0 | ENGIE SA. (ENGI:PAR), 0 | Endesa (ELE:BME), 0 | Endesa S.A. (ELE:MCE), 0 | National Grid plc (NG:LON), 1,054 | Centrica plc (CNA:LON), 132 | EDP - Energias de Portugal (EDP:ELI), 0 | EDP-Energias de Portugal SA (EDP:LIS), 0 | Acciona (ANA:BME), 0 | Acciona SA (ANA:MCE), 0 | Naturgy Energy Group, S.A. (NTGY:MCE), 0 | SSE plc (SSE:LON), 1,650 | Enel (ENEL:BIT), 0 | Enel SpA (ENEL:MIL), 0 | Fortum Oyj (FORTUM:HEL), 0 | Veolia Environnement (VIE:EPA), 0 | Veolia Environnement SA (VIE:PAR), 0 | Redeia Corporacion SA (RED:MCE), 0 | Enagas (ENG:BME), 0 | Enagas SA (ENG:MCE), 0 | Electricite de France (EDF:EPA), 0 | Solaria Energia y Medio Ambiente (SLR:BME), 0 | Solaria Energia y Medio Ambiente, S.A. (SLR:MCE), 0 | EDP Renovaveis (EDPR:ELI), 0 | EDP Renovaveis SA (EDPR:LIS), 0 | Orsted A/S (ORSTED:CPH), 0 | Orsted (ORSTED:CSE), 0 | Scatec ASA (SCATC:OSL), 0
- Published:
14 Mar 2023 -
Author:
Brough Martin MB | Palomo Manuel MP | Avory Hannah HA | Wyburd Harry HW | Regnard Xavier XR -
Pages:
5
The EU has published its power market reform proposals. Having read through the big PDF outlining the measures (see Exane-annotated version here), everything looks in line with the leaks, except for a new clause forbidding disconnection of vulnerable customers, which could be moderately negative for suppliers. Lack of mandatory CfDs for hydro/nuclear is supportive for generators (e.g. Endesa, Fortum) but this had been widely leaked already, as had measures to promote CfDs/PPAs, which are a mild positive for renewables developers in our view (incl. Orsted, ELE, RWE, IBE, Enel, EDPR).
The key proposals are on PPAs and CfDs
The centrepiece is support for long-term power contracts for renewables: 1) govts would have to stimulate the Power Purchase Agreement (PPA) market including guaranteeing PPAs to make them accessible to smaller offtakers, and 2) govts would be allowed to offer price support to renewables projects so long as undertaken through fixed-price contracts for difference (CfDs) with the benefit of the fix passed to consumers in times of high prices. It''s unclear whether (2) would rule out further support via tax breaks under loosened state aid rules announced last week.
Peripheral measures on end-pricing, resilience, trading, demand response, offshore
1) Govts would be allowed to set fixed tariffs during price spikes but must compensate suppliers for supplying below cost, 2) govts must ensure suppliers are properly hedged, 3) forward market liquidity should be improved via aggregation into virtual trading zones, 4) govts should stimulate demand response and storage, 5) offshore wind projects should be compensated for transmission bottlenecks, and 6) (new), vulnerable customers must not be cut off, which could raise bad debt risk for suppliers.
What it means for the sector and next steps
Lack of mandatory CfDs / fixed prices for hydro and nuclear is a relief for fixed-cost generators (ELE, Fortum), and PPA/CfD measures are moderately positive...