EU energy reform signals positive, says Unesid

The Spanish steel sector says the agreement reached by the Council of Energy Ministers of the European Union represents a “first substantial advance” in the reform of the European electricity market.

According to national steelmakers’ association Unesid, once the text has been finalised, it will be necessary for the Spanish government to have the political determination to ensure competitive, stable and predictable prices for industrial consumers.

Unesid points out that, despite the Spanish government’s and other countries’ attempts, the current system “sanctifies” pricing in the spot market, in such a way that all electricity that is negotiated in that market will be transacted at the price of the most expensive, usually that generated with natural gas.

“If mechanisms that effectively encourage bilateral contracts are not established, the industry will be forced to pay for a significant portion of its electricity at the rate of natural gas prices,” the association observes.

Regarding contracts for difference (CFD), Unesid maintains that the agreement will allow the countries to ensure prices to final consumers, and will provide an important guarantee to electricity producers.

CFDs allow national governments to agree on a stable price for the purchase and sale of electricity in a fixed period with suppliers and then return the difference depending on whether the final price has been higher or lower than what was agreed, Kallanish notes.

The association, however, is concerned that “while the agreement supports the French government’s treatment of its consumers or the German government’s plans to dope its industry, other countries with a smaller budget or political will may unfairly leave their industry at a clear disadvantage”.

The reform is the EU’s long-term response to the energy crisis experienced in 2022 as a result of the Russia-Ukraine war. Despite a high share of renewables in power generation, sharp increases in gas prices have led to more expensive electricity, since the EU electricity market was mainly based on the use of fossil fuels. After implementing measures to counter the rise, such as subsidies and the suspension of VAT, the reform is now focused on long-term solutions, to avoid similar situations in the future.

Todor Kirkov Bulgaria