France, Germany face test over EU power market reform

Although meant as a rapid response to the energy crisis, the file has become stuck due to deep disagreements between France and Germany.

While Germany, still heavily reliant on gas and coal power, has closed most of its nuclear power plants and is moving towards 100 percent renewable, France is two-thirds reliant on nuclear plants for its power supply and has been fighting for the EU to allow it to use state subsidies to lower the cost of nuclear power.

Germany objected because French producers would unfairly benefit. And Berlin's negotiators have also stressed nuclear power should not be equated to solar and wind power.

In an effort to mend relations, French president Emmanuel Macron visited Hamburg last week for a two-day retreat, and German chancellor Olaf Scholz pledged their countries would reach an agreement before the end of the month.

But Macron has put a lot of political capital in producing a success at home, and has promised to "regain" control over power prices.

France wants to do so under so-called Contracts for Difference (CfDs), which are already often used as a basis for offshore wind power projects.

So-called two-sided CfDs set a price-floor for producers. When power prices on the wholesale market dip below the predetermined level, the government covers the difference. If it exceeds the upper limit, the producer pays back the difference to the state.

The EU Commission had previously proposed including CfDs as a financing tool for new power projects.

But Spain, which currently holds the rotating EU presidency, has scrapped CfDs as a possible tool to support national products from the final negotiation text, which is dated 11 October, in an effort to get the file over the finish line more easily.

Complicating the matter is that Germany also offers such contracts to renewables providers but on a voluntary and more flexible basis, without fixed prices.

German climate action minister Sven Giegold said price agreements should remain voluntary, not fixed, as France proposes. However, the two countries are still negotiating ahead of the meeting.

Eurelectric, representing the European power sector, in a letter signed by its president Leonard Birnhaum sent on Tuesday calling on EU ministers to agree on their position on Tuesday. "We have no additional time to lose," wrote Birnhaum.

If no agreement is reached on Tuesday, EU energy ministers will next meet on 19 December, which would likely push a final accord into 2024.