The amending Regulation comes into effect on 16 July 2024 and is directly applicable in Member States. The amending Directive comes into effect on 16 July 2024 and contains amendments to be transposed in national law beginning from 17 January 2025.

The amendments recognise that the wholesale market price for energy is not necessarily appropriate to attribute to, or commensurate with the value of, other crucial elements of the energy system – particularly those elements required for security of supply and energy transition.  This represents a significant shift in thinking.

Capacity mechanisms are no longer temporary measures of last resort, but rather an enduring feature of market design. The Regulation puts in place a process to be kicked off by the Commission to simplify the adoption of capacity mechanisms in Member States.

Supporting long-term investment in renewable generation, flexibility and grids is now a key aim of the Regulation. 

Member States must promote the uptake of PPAs, including by removing unjustified barriers and disproportionate or discriminatory procedures or charges. Member States must ensure there are instruments to reduce financial risks associated with offtaker payment default. Such instruments may include state-backed guarantee schemes at market prices, private guarantees, or facilities pooling demand for PPAs.

Support schemes for electricity from renewable sources must allow participation of projects that reserve part of the electricity for sale through a renewable PPA or other market-based arrangement. Support schemes are intended to align with a number of principles: for example, avoiding undue distortions to competition and trade, in particular by determining remuneration amounts through an open, clear, transparent and non-discriminatory competitive bidding process. It is specified that direct price support schemes for wind, solar, geothermal, hydropower without reservoir, and nuclear must take the form of a two-way CfD (or equivalent scheme with same effects). This is the approach already taken in Ireland. Any revenues (or the equivalent in financial value) arising from direct price support schemes in the form of CfDs and equivalent schemes must be distributed to final customers. (In Ireland, there is already a legislative basis for refund of the Public Service Obligation when reference prices are above strike prices). Notwithstanding this requirement, the revenues can also be used to finance the costs of the direct price support schemes or investment to reduce electricity costs for final customers.

Notably, the distribution of revenues to final customers must be designed to maintain incentives to reduce their consumption or shift it to periods when electricity prices are low. This is important for energy efficiency and transition to carbon neutrality. Separately, the new provision on peak-shaving has been somewhat pared back from the Commission’s original proposal. Procurement of a peak-shaving product by system operators is now envisaged to happen at the request of Member States where a regional or EU electricity price crisis is declared.  The ambition to procure peak shaving products more widely is still apparent: by 30 June 2025, ACER must assess the impact of developing peak-shaving products on the EU electricity market under normal market circumstances.

There is a new process for determining flexibility needs and national objectives for non-fossil fuel flexibility. Where investment in non-fossil flexibility is insufficient to achieve the indicative national objective, Member States can apply non-fossil flexibility support schemes, which would consist of payments for the available capacity of non-fossil flexibility without prejudice to Articles 12 (Dispatching of generation and demand response) and 13 (Redispatching).

There are also new provisions setting out the information TSOs must publish about capacity available for new connections, to be updated at least every month. Clear information about the status of connection requests must be provided and updated at least quarterly.

On the consumer side, a significant development is that customers will be free to have more than one electricity supply contract or energy sharing agreement at the same time.  For that purpose, customers will be entitled to have more than one metering and billing point covered by the single connection point for their premises (and, where technically feasible, smart metering systems may be used for these purposes).

Several further amendments give greater definition to obligations that apply to key stakeholders in the industry, with the aim of facilitating energy transition. For further information on the new provisions, please get in touch with any of our team.