Europe's Power Market Reform a Boon for Struggling Utilities

The European Commission's 1,000-page draft reform "Winter Package" proposes binding targets to cut energy use by 30 percent by 2030 and wants to put Europe on track for renewables to power half of the continent by 2030.

But it also plans to remove new wind and solar installations' priority access to electricity grids and backs "capacity mechanisms" under which utilities can receive payments for keeping unprofitable and polluting fossil fuel-fired power stations on stand-by.

Under existing regulations, renewable energy gets priority access to electricity networks, which means wind and solar producers are guaranteed being able to sell their power at fixed, usually subsidised prices, even when power demand is low.

This depresses wholesale electricity prices and has at times led to negative prices, when huge quantities of free wind power saturate EU grids, to the detriment of traditional utilities such as Engie, RWE, and EDF, whose gas, coal and nuclear plants struggle to compete.

"The abolition of priority dispatch (access) is an important step towards a level playing field and full market integration of renewables," said Gunnar Groebler, head of wind at Swedish utility Vattenfall, a major player in nuclear and hydro.

Germany's E.ON, a big player in fossil fuels, also welcomed the EU proposals, saying it agreed with making renewables bear more responsibility for a stable energy system.

Environmentalists Greenpeace, however, criticised the plans, saying they threatened the roll-out of renewables, while prolonging subsidies for coal.

"These draft laws are designed for polluting power companies, not for European citizens," Greenpeace EU energy policy adviser Tara Connolly said.

EU wind industry lobby WindEurope said it would have preferred priority dispatch to remain but scrapping it was unlikely to have a big bearing on new investment.

"Investment is more likely to be affected by the level of clarity that governments provide on support schemes," spokesman Oliver Joy said.

Utilities also welcomed the EU's endorsement of capacity mechanisms for back-up power, a long-standing industry demand.

Under the plan, new power plants wanting to benefit from capacity payments could emit at most 550 grams of CO2 per kilowatt-hour, while existing plants will not have to comply with the measure before 2026.

Greenpeace said this meant governments would be able to dole out cash to at least 95 percent of all coal power stations in Europe for another decade.