France and Germany tug of war over EU electricity reform

Adriana Lima
By Adriana Lima 4 Min Read
origin 1As European energy ministers prepare for their meeting on 17 October, France and Germany are struggling to find a compromise. ©LUDOVIC MARIN/AFP or licensors

Despite October’s record temperatures, Europe is slowly moving into winter – the second since the war in Ukraine began that prompted Russia to cut gas supplies to the continent.

After the price surge last winter, when gas and electricity bills “almost doubled in all EU capitals”, the EU decided to act.

In March, the European Commission proposed a reform “to promote renewable energy, better protect consumers and strengthen industrial competitiveness”.

However, France and Germany are struggling to find a compromise and time is running out as European energy ministers prepare to meet on October 17 in Luxembourg.

The CFD controversy

At the heart of the matter are contracts for difference (CFDs).

By providing a guaranteed price for electricity, CFDs aim to support investments in renewable energy projects.

France, which has 56 nuclear reactors, is pushing for nuclear energy to be included in CFDs, but this has caught the attention of Germany.

Berlin suspects Paris wants an exception that would give its industry a competitive advantage and says it should only apply to new investments.

France wants to “take back control of the price”

The disagreement is at the center of bilateral talks in Hamburg, which began on Monday, between the French and German governments.

French President Emmanuel Macron promised in a speech at the end of September “to regain control of the price of electricity, at a French and European level.”

Because electricity produced from gas is much more expensive than nuclear electricity, France may be tempted to switch to a national system rather than a European one to be more economically competitive.

However, France is “confident” of reaching an agreement with Germany on electricity market reforms, Macron said on Friday.

Alongside France there are other pro-nuclear countries such as Hungary, the Czech Republic and Poland, while Germany can count on the support of Austria, Luxembourg, Belgium and Italy.

But even if a last-minute deal is reached, the energy fights between the two countries would creep into all ongoing European negotiations on the topic.

Germany wants a massive expansion of the continent’s electricity grids to be able to import energy; France focuses on energy sovereignty and national production.

France wants to be able to use nuclear energy to produce clean hydrogen, while Germany is reluctant, and so on.

EU electricity market reform: what exactly is a contract for difference?

Price competition in the United States

Another element that adds pressure to the negotiation is the competition from the United States.

The competition has been particularly heated since the country passed the test Inflation Reduction Act (IRA) a year ago: a massive government aid program to help companies increase production of cutting-edge, green technology.

“The goal is to have an adequate and strong response to [IRA] and the fact that industrial investments in the US have tripled,” said Agnès Pannier-Runacher, French Energy Minister, in an interview with the Financial Times.

“We have a few weeks to act and find a solution,” he added.

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