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Government intervention on energy markets

The EU issues guidance for government intervention in energy markets.

One of the five pillars of the EU energy union strategy, launched in 2015, is that “energy should flow freely across the EU without any technical or regulatory barriers”.

While striving for greater market orientation, the strategy also states that government intervention may sometimes be necessary to ensure that consumers in all EU countries have access to clean, sustainable and secure energy.

To clarify these statements, the EU has issued a number of documents providing guidance on government intervention – on the electricity market, on renewables, and on cooperation mechanisms - to help ensure that such support schemes attract investor confidence without distorting the functioning of the internal energy market, or increase prices for European consumers.

Electricity market design

The Clean energy for all Europeans package, adopted in May 2019, introduced a new set of electricity market design rules aimed at reinforcing a market-orientated approach. Market-based electricity prices are a key component of flexible, efficient and consumer-centred energy markets. Retail prices should therefore be free from government intervention. Under the new rules, targeted price regulation, such as social tariffs, will be permitted for a transition period to help vulnerable consumers until their circumstances can be improved by appropriate energy efficiency and social policy measures. In the future, price regulation should be allowed only in exceptional circumstances. Similarly, the rules on capacity mechanisms introduce an emissions cap for the first time to ensure that where electricity generation is subsidised, it does not contradict our emission reduction objectives.

EU State aid rules also continue to apply in full.

Renewable energy

Renewable energy technologies, such as wind or solar power, have in the past needed significant government intervention. However, even though modern technology and innovation have increased their use in recent years, the EU energy market does still not provide sufficient levels of renewable energy to meet the targets set. The EU has therefore published guidance for renewable support schemes to make sure investment in renewable energy is encouraged.

The EU also encourages countries to use cooperation mechanisms so that EU countries can work together to meet the targets set for final energy consumption from renewable sources, for example by statistical transfers or joint projects.