The proposed changes to the EU’s “electricity market design” are a response to the spike in European power prices following Russia’s invasion of Ukraine in February 2022.to Spain’s Energy Minister Teresa Ribera, mean that “consumers across the EU will be able to benefit from much more stable prices of energy, less dependency on the price of fossil fuels and better protection from future crises”.
Wholesale pricing will continue to be determined on a pay-as-clear model, where bidding goes from the cheapest to the most expensive source, which tends to be gas. It’s just that it’s now LNG rather than Russian gas that sets the price. Rather, the focus will be on longer-term price stabilizers such as power purchase agreements between generators and users and two-way contracts for difference for investment in new green generation.U.S. aluminum producer Alcoa is a poster child for Europe’s PPA model, using it to help secure the long-term future of its San Ciprian smelter in Spain.
With limited forward liquidity in the company’s local Nordpool power market, “no one’s willing to take the risk on a fixed-term PPA”, he said. The EU reform package is intended to iron out some of these problems by, for example, mandating member states to ensure guarantee schemes for smaller companies looking to enter PPAs.
Metals producers are not only having to adjust to currently high electricity costs but face even higher costs as they seek their own pathway to net zero.