Electricity market reform: EU solutions against price volatility
Learn about the reform of the EU's electricity market reform, which will lower costs, support green energy and keep prices more stable.
For more than 20 years, the EU has had a well-functioning electricity market. However, Russia's war in Ukraine and the increased volatility of the energy market that ensued highlighted the overreliance on fossil fuel imports.
In April 2024, Parliament adopted a regulation to reform the rules for the electricity market. The focus is on encouraging long-term contracts for non-fossil energy, introducing cleaner solutions, and increasing market transparency. Overall, the proposed reforms aim to create a more resilient and sustainable energy market.
Making electricity prices more stable
The EU wants to make sure that both energy producers and consumers benefit from predictable prices. One way to achieve this is through two-way contracts for difference (CFD) for new investments in low carbon energy production where public funding is needed.
This means that national authorities agree with electricity producers predefined ranges for energy prices. This benefits everyone: the producer can be sure to be able to sell energy at a predictable price, all the while providing important new energy to consumers.
In areas where two-way contracts for difference are not relevant, power purchase agreements (PPA) are promoted - long-term contracts for the supply of agreed quantity of electricity at a fixed price.
A shift towards a renewable energy system is vital in order to ensure a sustainable and independent energy supply for the EU. That is why the EU is setting ambitious goals. In 2023 it adopted the revised Renewable Energy Directive, raising the EU’s binding renewable energy target for 2030 to a minimum of 42.5 percent, in line with the European Green Deal.
Increased flexibility
Protecting consumers is a priority. The electricity market reform offers more stable prices based on renewable energy, but it also gives consumers the choice between secure long-term contracts and dynamic pricing for flexibility.
To increase the power system’s flexibility, EU countries must assess their needs, set goals for non-fossil power production, and work to enable energy storage.
Enhancing grid resilience
The 2025 blackout in Spain and Portugal underscored the critical need to modernise the electricity grid infrastructure across Europe. In June 2025, Parliament called for comprehensive proposals to upgrade and strengthen the grid, focusing on increased investment and cross-border cooperation.
The contribution of wind and solar energy to the grid cannot be planned in the same way as burning fuels so they demand more advanced grid technology. The European Commission is now working on draft legislation aiming to prevent future disruptions. The purpose is also to enhance the capacity of the electricity grid to integrate renewable energy sources, to ensure a seamless transition towards a decarbonised energy system.
Regulation of the gas market
Together with the reform of the electricity market, another piece of legislation was adopted by the Parliament in April 2024. It concerns the regulation on the internal markets for renewables and natural gases, and for hydrogen. It will promote renewable and low-carbon gases like hydrogen. The aim is to address climate change and reduce the EU's dependence on Russian fossil fuels.
