EU looking to ensure renewables policy edge

The European Union is reportedly planning to overhaul the 27-member bloc's energy market to give greater priority to renewable energy sources, despite suggestions that this could hamper investment in wind and solar.

Currently, a system called merit order puts renewable and nuclear power as priority sources of energy, ahead of gas and coal, but the final price, set by the generator, is pegged to the most expensive fuel source, which at the moment is gas.

This means that renewables, which have lower individual production costs, end up having to share the price burden of more expensive fossil fuels.

The energy supply crisis of the last 12 months has pushed up consumer bills, and with more difficulties forecast over the coming year, France and Spain have led calls for the system to change and bring down prices.

EU Energy Commissioner Kadri Simson admitted that the EU's executive arm, the European Commission, has been under "very strong political pressure "to make changes.

"We are working under extraordinary circumstances and delivering (reforms) faster than the commission usually does," she was quoted as saying by the Financial Times, adding that a clearer proposal was likely to emerge by the end of March.

Limitations exposed

As far back as August, European Commission President Ursula von der Leyen tweeted that skyrocketing electricity prices are now "exposing the limitations of our current market design".

"It was developed for different circumstances. That's why we are now working on an emergency intervention and a structural reform of the electricity market," she tweeted.

European Commission figures showed that around 40 percent of European electricity production came from renewable sources in 2020, as opposed to around 36 percent of fossil fuels and 25 percent from nuclear.

Although the most simple solution would be to reduce demand to the extent that gas-fired production could be ruled out altogether, that is complicated over such a wide-ranging area with such diverse demands.

Simson said the commission wants to enable consumers to have access to the "benefits of a larger share of renewables", but industry figures have warned that interfering with existing arrangements and long-term contracts, including deals known as power purchase agreements, at such a delicate time in the energy sector may end up making renewables less economically attractive.

Nick Keramidas, regulatory affairs director at Greek metallurgy company Mytilineos, told the FT that PPAs were huge deals made based on long-term security, and to make secure investments, "you need to make sure the market fundamentals will …not change".