German-French disagreements block EU power market reforms

6 October 2023

European Union (EU) countries may delete a key part of planned reforms to Europe's electricity market in the face of continued disagreements between France and Germany, Reuters has reported.

While the EU’s 27 member states are trying to develop a joint position on power market reforms differences over whether the rules could give some countries a competitive edge over others are preventing progress.

One issue is whether governments should be able to offer state-backed, fixed-price power contracts to existing power plants and use the excess revenues generated by these contracts to subsidise industries. Germany is opposing France’s plans to apply these subsidies to its nuclear power fleet, which are supported by central and eastern countries.

Reuters reported seeing a compromise document prepared by Spain which looked at three options. One entails removing the rules on these subsidies from the reform. The other two would limit how countries can use the revenues raised through the power price subsidies, giving Brussels the power to limit a country's use of these revenues if it was distorting the EU's single market.

The first option would not prevent France and other countries from offering fixed-price power contracts to generators but would require approval from Brussels under EU state aid rules.

The original European Commission reform proposal put forward in March encouraged long-term, fixed-price contracts for power generators in face of gas price rises triggered by European sanctions on Russian oil and gas in the wake of Russia’s special military operation in Ukraine. Brussels proposed that public support for new investments in renewable and nuclear plants must take the form of fixed-price state-backed power contracts. This section could now be deleted.

According to the Financial Times (FT) Germany is seeking a “grand bargain” with France to resolve differences. The FT cited Sven Giegold, State Secretary at the German Economy & Climate Ministry and Green Party member as saying: “We are working towards a larger compromise on energy issues. We need a grand bargain,” he said, adding that it could cover wider energy policy, not just nuclear. He added that all parties agreed on the “need to decarbonise, bring down energy prices and invest more in our common energy infrastructure and in new generating facilities”.

He added: “We believe we should have a larger compromise. But we are not there yet.”

The comments are likely to be viewed with scepticism in Paris where officials have been negotiating for months with their German counterparts over a proposed EU electricity market reform.

France argues that its large state-owned nuclear fleet is key to helping meet emissions cutting targets and should not be penalised in new EU rules. The Ft said French officials also believe the negotiations are being affected by German fears that France would gain a competitive edge with cheap nuclear energy to the disadvantage of German manufacturers. German officials have accused France of seeking to bend EU state aid to subsidise electricity prices undermining the single market. France points out that it would still be subject to Brussels’ oversight to prevent anti-competitive behaviour.

French President Emmanuel Macron and German Chancellor Olaf Scholz are expected to hold several meetings in the run up to a wider meeting of EU energy ministers scheduled for mid-October.

The inclusion of contracts for difference (CFDs) is a source of disagreement. Germany opposes France’s proposal to be able to use CFDs on electricity generated from its existing NPPs, as well as new ones. Giegold said Berlin saw the CFDs “mainly reserved for new investment and not for already depreciated installations. For us, this is a tool to support new investment, regardless of the form of energy”.

The FT said, in an attempt to break the deadlock, Germany has proposed that CFDs can occasionally be used for existing NPPs, such as when new investments are made to extend the lifespan of the reactor. But insisted that revenues from the CFDs must be proportionate to the amount invested. France has tabled a counterproposal supported by Bulgaria, the Czech Republic, Croatia, Hungary, Poland, Romania, Slovakia and Slovenia.

Nicolás González Casares, a Spanish socialist MEP who negotiated the EU parliament’s position, defended the CFD provision and said any attempts to scrap it would prompt “strong opposition” from the parliament. He said it was “urgent” that France and Germany did not “waste any more time” trying to reach agreement so negotiations could start with the parliament. Otherwise, the reforms risked not being passed before EU-wide elections in June next year.

There are also concerns that delays in adopting the reform may make it harder for the EU to compete with the US and China.

France has been promoting nuclear power in the EU through an alliance calling on Brussels to do more to back the construction of reactors. France’s 56 nuclear normally account for around 70% of power generation but this fell to 63% in 2022 due to the shutdowns of several plants because corrosion problems. However, France has already selected three sites for six new EPR2 nuclear reactors through a €52bn ($58.2bn) construction programme. The sites are Penly and Gravelines in northern France and Bugey in eastern France. In July, EDF applied to build the first two units at Penly.

A recent analysis in Carbon Credits compared the situations of France, with its large nuclear fleet and Germany, which phased out nuclear in favour of renewable energy (Energiewende) following the Fukushima Daiichi accident. The article, entitled “How Germany Lost Another World War”, noted: “To this day, nuclear power generation in France remains so high that nuclear plants occasionally close for the weekends. It’s an unbeatable level of energy security. Not only that, but it accidentally gave France an incredible head-start in the race to net zero.”

In Germany renewables costs – for solar panels and wind turbines and biogas plants – were rapidly forced onto consumers. The article cites a study by the OECD which found that the cost of household electricity in Germany increased by 50% from 2006-2017 and concluded that prices would continue to increase as long as Germany keeps building solar and wind. “Meanwhile, France’s electricity costs are 40% lower than Germany’s.”

The article also notes that German carbon emissions are rising because nuclear has been primarily replaced by coal and imported gas. “In fact, closed coal plants are being restarted to compensate for shuttered nuclear. And Germany is scheduled to open a half-dozen new fossil fuel facilities by the end of 2023.”

Furthermore “deployment of renewables is falling off a cliff. Wind turbine installation dropped by nearly 60 percent from 2017-2018.

In 2021, Germany barely installed more wind than in 2000.

It was an echo of solar: Installations of solar panels fell by 85 percent from 2010-2014, and have still not recovered.”

The article concludes: “So Germany is already setting aside $300 million a year to pay EU emissions fines. At the same time France is making $3 billion a year from selling nuclear electricity to other countries.”

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