European Union consumers are set to be better protected from strong fluctuations in electricity prices, after EU ministers agreed to reform the bloc’s electricity market on Tuesday.
Belgian Energy Minister Ten van der Straeten said in a statement that the reform paves “the way towards a more stable, sustainable and predictable energy market.”
The reform aims to protect European Union consumers from massive increases in electricity prices, such as those witnessed last year, after Russia reduced fuel exports to the bloc.
New long-term contracts between governments and power plants, under which the state intervenes if the market price falls below the agreed upon price, are essential to reform efforts.
This step aims to stimulate local production of green energy and nuclear energy by ensuring a return on investments.
Representatives from EU member states and the European Parliament approved market reforms in Strasbourg, France, after lengthy and arduous talks last December.
The EU electricity market operates according to the merit ranking principle, which determines the order in which power stations provide electricity and determines the market price.
Power plants that can produce electricity at a relatively low marginal cost, such as wind farms, are used first to cover demand.
But as demand rises beyond the capabilities of those primary sources, higher cost sources are used.
Thus, the final price depends on the sources that have to be used to meet demand, as well as fluctuations in the costs of using those sources. For example, rising natural gas prices increase the cost of using gas-fired power plants.
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