The EU will provide income guarantees for nuclear power plants and coal-fired thermal power plants

The EU authorities, who previously wanted to get rid of the capacity market in the electricity sector, have now decided to provide capacity payments to coal-fired thermal power plants until the end of 2028 in order to balance the energy system with the rapid development of renewable energy sources. The main beneficiaries of the amendments are Germany and Poland with a large share of coal-fired thermal power plants, analysts say, noting the inevitability of supporting base stations through non-market payments. In return, France managed to achieve an amendment in favor of its old nuclear power plants, which from 2026 will receive a guaranteed tariff covering actual costs.

Kommersant studied the amendments to the European energy market regulations agreed upon by the EU Council (the document was published on October 19). One of the key changes is the extension of non-market payments for the capacity of coal-fired thermal power plants (with emissions of more than 550 g of CO2 per 1 kWh of output) for another three years – until December 31, 2028. Thus, the European Council recognized that coal-fired thermal power plants are necessary for the reliability of energy supply. Capacity mechanisms, despite possible market distortions, “can play an important role for balance sheet reliability, especially during the transition to carbon-free energy when teleconnections between power systems are weak,” the document says. The phrase that capacity mechanisms are temporary was also removed from the regulations.

In the EU, each country can create a capacity market by first agreeing the rules with regulators. A power plant in the capacity market receives money for its readiness to turn on at any time at the dispatcher’s command, which allows it to earn income while remaining in reserve. In 2022, various capacity mechanisms were in operation in eight countries, including Germany, France and Poland, according to a report by the European Agency for the Cooperation of Energy Regulators (ACER). The market volume amounted to 174 GW, mainly coal and gas thermal power plants, as well as French nuclear power plants. The total payment for capacity exceeded €5.2 billion, and in 2023 it will reach €7.4 billion. The highest price for capacity is in Germany – more than €60 thousand per 1 MW, in Poland – about €45 thousand.

The EU has long wanted to completely abandon capacity payments (in the EU they are called subsidies), since this distorts price signals for cross-border trading on a single electricity exchange, says Sergei Rozhenko from Kept. But it turned out that the capacity market is the only way to maintain basic generation, which is necessary with a large volume of renewable energy sources. “Now they are coming up with various exceptions and clauses, although I am sure that the subsidies will be extended indefinitely,” says Mr. Rozhenko. “The main beneficiaries are Germany and Poland with a large share of coal-fired thermal power plants. Although in fact this is beneficial for the European economy and industry, which will receive uninterrupted kilowatt-hours.”

Another important change is the introduction of support mechanisms for older nuclear power plants. From 2026, operators of existing nuclear power units will be able to enter into long-term “contracts for difference” (CfD) with the state when upgrading equipment or extending the service life of a facility. In essence, such an agreement will establish a tariff for nuclear power plant generation and the station will be guaranteed to receive a price per kilowatt-hour that covers its actual costs. If the market price turns out to be higher than the tariff, the generating company will return the difference to the regulator. At very low market prices, the state will subsidize the generating company.

The introduction of tariffs for old nuclear power plants was lobbied by France, where the volume of nuclear generation exceeds 62 GW (generation in 2022 is 279 billion kWh, or 63% of the total generation in the country). Now old nuclear power plants are required to sell about a third of their output at a low tariff of €42 per 1 MWh, which is why the state-owned company EDF is suffering losses. From 2026, the previous regulatory mechanism will be replaced by CfD contracts, follows from the decision of the European Council. In the summer of 2023, the French Energy Market Regulator (CRE) published calculations of the full production price of French nuclear power plants, which in 2026–2030 will be €60.7 per 1 MWh, and the cost price will be €57.8.

Germany, which closed its last nuclear power units in 2023, strongly opposed the introduction of CfD for old nuclear power plants. The German authorities insisted that only new renewable energy sources and mini-hydroelectric power plants should receive contracts for difference. Because of this, the European Council was unable to agree on changes to regulations for several months. It is likely that France and Germany have found a compromise through the adoption of two mutually beneficial instruments: higher tariffs for French nuclear power plants and extended subsidies for German coal-fired power plants. In Germany, the share of production from brown coal thermal power plants in 2022 was 20.4%, from hard coal – 12.4%, and from gas thermal power plants – only 10.6%. Poland remains the leader in the EU in terms of the volume of coal in the energy balance, where the output of coal-fired thermal power plants reaches 77%.

Polina Smertina