ENERGY: EU’s Competitiveness Report Urges to Decouple Clean/Fossil Fuel Price

The EU’s Competitiveness Report recommended the bloc to decouple the remuneration of renewable and nuclear energy from fossil-fuel generation by building on the tools such as PPAs and two-way CfDs. 

• The report also suggested to extend PPAs and CfDs to all renewable and nuclear projects in a harmonised way, with the marginal pricing system should be used to ensure efficient balance in the energy system.
• The bloc also aims to create market platform to contract resources and pool demand between generators and offtakers to increase the use of PPAs in the industrial sector.
• The EU must accelerate its decarbonisation in a cost-efficient way by building new renewables, nuclear, hydrogen, bioenergy and carbon capture, utilisation and storage capacities which should be backed by both private and public finance.
• To achieve that, the bloc must accelerate the pace of permitting for new projects by introducing legislation and/or improving digitisation for permitting.
• Emissions - The report also recommended the EU should closely monitor and improve the CBAM design during the transition phase and consider postponing the phase out of free ETS free allowances for EIIs if implementation is ineffective.
• Natgas - The report also recommends reinforcing joint procurement for LNG to leverage Europe’s market power and to establish long-term gas supplies.
• Europe also needs to reduce its exposure to spot market by encouraging a progressive move away from spot-linked sourcing and to reduce volatility in EU gas markets by limiting the possibility of speculative behaviour.
• While energy prices in the EU have fallen from their peaks, EU companies are still facing higher power and natural gas prices than for example in the US, weighing on the bloc’s competitiveness.