The energy ministers of the EU states today decided on a reform of the electricity market, which was initiated two years ago in view of the energy crisis. This brings many advantages for you as a consumer.
When electricity prices shot up in 2022 amid the energy crisis triggered by Russia’s invasion of Ukraine, the EU was forced to act. The Europe-wide electricity market should be reformed so that consumers have more rights and can switch to cheaper tariffs more easily. Electricity prices have fallen significantly today even without reform, but now the EU energy ministers have finally decided on the reform. It changes:
With conventional electricity tariffs, you always pay the same price per kilowatt hour, no matter how expensive it is to produce it. This is different with dynamic electricity tariffs. They pass on the current exchange electricity price to you with only a slight delay. This makes it cheaper to run your washing machine at night, when little electricity is being consumed in the network, than during peak load times. Smart home appliances can even automatically take advantage of this to save you hundreds of euros per year. From 2025, energy suppliers will now be required to offer customers such a tariff.
From the beginning of 2022 to October 2023, the electricity price for the average German household rose from 23.6 to 70 cents per kilowatt hour. It has now fallen back to 26 cents. Such stark fluctuations should be avoided in the future. The mechanism for this is bilateral contracts for difference (CfD). The way they work is that each state – in Germany the Federal Network Agency – sets a range with energy producers within which electricity prices can move. If the exchange electricity price is below this range, the state reimburses the difference to the producers. If it is higher, the producers have to pay the difference to the state. For end consumers, this ensures that the prices are always within the range. However, it will still take some time before the CfDs are introduced in Germany. The EU has decided on a transition period of three years, so the price ranges will not be set until 2027 at the earliest.
During the energy crisis, many utilities unilaterally changed contracts with their customers – mostly by increasing prices. This should be banned in the future. Anyone who has a contract with fixed prices should be able to rely on it in the long term. If customers can no longer pay electricity prices, the hurdles to turning off their electricity will also become higher. If in doubt, the state should step in and take over your electricity debts. What this will look like in detail is not yet clear and must be worked out separately by each member state. However, one mechanism in the event of a new price crisis should be that households in need of protection – such as those with low incomes – pay government-set electricity prices.
The last important change only affects consumers indirectly. The EU also wants to promote the expansion of renewable energies through the CfDs. Because the contracts guarantee producers a minimum price, they have an incentive to build electricity generation systems that are as cheap as possible. Solar farms and wind farms are at the forefront. The producers can offer the electricity produced there cheaply on the electricity market in order to outdo competitors, but in any case the difference to the minimum price will be reimbursed by the state. This mechanism aims to achieve the goal of at least 42.5 percent of electricity consumption in the EU coming from renewable sources by 2030. In 2022 the rate was only 23 percent.
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