Coal Subsidies Jeopardize EU Power Market Reform

Authored by Irina Slav via OilPrice.com,

The European Union is attempting to reform its power market in order to decouple the price of electricity across the bloc from the price of natural gas.

A last-minute submission of a proposal to extend subsidies for coal power plants in the EU could derail plans to quickly agree to the reform.

Without financing, coal power plants would likely go out of business, which could leave the EU energy market exposed to price swings.

A proposal to extend subsidies for coal power plants in the EU may interfere with plans to quickly agree on a power market reform that Brussels claims would make electricity prices more stable and predictable.

Sweden, the rotating president of the EU, submitted the proposal at the last moment, suggesting that EU members keep their subsidies for coal power plants, Reuters reported today. The subsidies finance the facilities to ensure they stand by ready to generate electricity in case of a decline in output from other sources.

The proposal sounds quite sensible in light of Britain’s recent experience with solar: a hot weather spell compromised its solar power capacity output, prompting the start of a coal power plant to make up for the difference between electricity supply and demand.

Without such financing, coal power plants would go out of business because working only sporadically would basically guarantee the electricity they produce is not competitive, especially combined with the emission permits coal power plant operators are obliged to buy from the EU.

The power market reform aims to decouple the price of electricity across the European Union from the price of natural gas and instead tie it to the price of electricity generated by wind and solar installations.

The idea is to lock in prices over a longer term under power purchase agreements with businesses and so-called contracts for difference with the government to avoid the surge Europeans saw last year.

Sweden’s proposal, however, could derail the deal as some EU governments believe continued financial support for coal power goes against the EU’s net-zero agenda.

At the same time, some EU members such as Poland and Bulgaria have been reluctant to close their coal power plants without enough alternative–and reliable–generation capacity to replace them.