EU draft shows plan for more fixed-price electricity contracts

BRUSSELS -

The European Union wants to expand the use of contracts that pay power plants a fixed price for electricity, a draft proposal showed, to shield European consumers from big price swings.

The European Commission pledged last year to reform the EU's electricity market rules, after record-high gas prices, caused by cuts to Russian flows, sent power prices soaring.

A draft of the EU executive's proposal, seen by Reuters on Tuesday and due to be published on Mar. 16, steered clear of the deep redesign of the electricity market that some member states have called for, suggesting instead limited changes to nudge countries towards more predictable, fixed-price power contracts.

If EU countries want to support new investments in wind, solar, geothermal, hydropower and nuclear electricity, for example, they should use a two-way contract for difference (CfD) or an equivalent contract, the draft said.

The aim is to provide a stable revenue stream to investors, and help make consumers' energy bills less volatile. Restricting this support to renewable and low-carbon electricity also aims to speed up Europe's shift away from fossil fuels.

Two-way CfDs offer generators a fixed "strike price" for their electricity, regardless of the price in short-term energy markets. If the market price is above the CfD strike price, then the extra revenue the generator receives should be handed out to final electricity consumers, the draft EU document said.

Countries should also make it easier for power buyers to sign power purchase agreements (PPA) - another type of long-term contract to directly buy electricity from a generator.

Governments should also make sure consumers have access to fixed-price electricity contracts - giving them the option to avoid a contract that would expose them to volatile prices swings in energy markets, the draft said.

If European energy prices were to spike to extreme levels again, the Commission suggested allowing national governments to temporarily intervene to fix prices and offer consumers and small businesses a share of their electricity at a lower price.