From Breakingviews - EU power rejig may only solve tomorrow’s problem
Electric pylons are seen at an Engie subsidiary Electrabel combined-cycle gas turbine power plant in Drogenbos, Belgium, December 12, 2022. REUTERS/Yves Herman
Von der Leyen’s promised reform luckily shies away from the most radical calls for change. Under the current system, wholesale electricity prices are set by the most expensive energy source, which last year was ballooning gas. That prompted countries like Greece and Spain to propose to separate cheaper solar and wind generation from fossil fuels.
The approach is not as market-friendly as fixed-price, subsidy-free power purchase agreements, which last year only made up 1% of total power generation. But by providing a fixed price below which suppliers will be reimbursed, it protects green power developers against a future scenario where electricity prices are way too low rather than way too high. That reduces their financial risks and cost of capital.
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