EU Power Lobby Warns Spain’s Proposed Market Changes Could Lead to Higher Costs

The European Union's electricity sector has warned that Spain's reform plan for the region's power market could lead to higher costs for consumers.

Eurelectric, a trade association representing 3,500 power sector companies, has criticized a Spanish proposal to boost long-term renewable energy deals. In a letter to EU energy commissioner Kadri Simson, Eurelectric said the proposal would lower competition and force households to pay for inefficiencies.

The bloc's internal energy market could be at risk if the proposed changes are implemented, according to the lobby group. The market has existed for more than two decades and could be put in the hands of national regulators if the changes go ahead.

Eurelectric's stance on the upcoming electricity market reform in Europe highlights the sensitivity of the issue, especially in light of recent events such as the Russia's invasion of Ukraine. This has led to increased scrutiny of the reform proposal, as high energy prices have been a major concern for consumers and businesses alike.

This week, the bloc's executive branch began a public consultation on its reform plans, which it intends to propose in March.

The letter noted that the uncertainty surrounding the new market design will delay investments that are critical to reducing gas dependency and mitigating the current crisis.

The EU’s member states are divided on the issue of energy reform, with some calling for a deep decoupling of the price of gas from electricity, and others only seeking small changes.

The lobby said that the design for the electricity market should retain its so-called marginal pricing model. Under this model, the cost of electricity is set according to the most expensive fuel needed to generate it. They added that some measures could complement the existing design, such as a “market-compatible” investment framework to boost renewables.

The European Union (EU) is working to find a balance between keeping energy prices affordable for consumers and encouraging investment in renewable energy sources. One suggestion that has been made is to increase the use of "contracts for difference," which would involve setting a price for electricity produced over a fixed period of time. Another option that is being considered is called a power purchase agreement, which is a deal between a utility and an electricity producer.