In certain cases, public intervention in the energy market may be necessary. For example, renewable energy projects cannot be financed by the market.
The EU issues guidance to help ensure government support schemes attract investor confidence and do not distort the functioning of the internal energy market or increase prices for European consumers.
Guidance on renewable energy
In the past, renewable technologies such as wind and solar needed significant state intervention. Recently, however, the costs of these forms of energy have fallen, thanks to technological innovation resulting from their increased deployment.
EU guidance for the design and reform of renewables support schemes calls for flexible and market-based solutions. This is to avoid market distortion through overcompensation. The EU's competition policies also ensure the proper functioning of the EU's internal energy market by checking that state aid schemes for renewables do not distort the market
The EU also encourages countries to use cooperation mechanisms to meet their 2020 renewables targets.
Guidance on capacity mechanisms
Security of supply is seen as a growing concern in an increasing number of EU countries. In addition, renewable sources of electricity such as the wind and sun cannot always provide the same amount of power every day.
As a result, some EU governments have, or plan to have, capacity mechanisms in place in order to prevent energy shortages that will affect consumers. Capacity mechanisms are measures that allow energy providers to be paid for maintaining their existing power plants or even for investing in new ones. This is in addition to the normal payment they receive for providing electricity to the market.
The Commission's new legislative proposal 'Clean energy for all Europeans', which was released in November 2016, recommends reforms to improve the functioning of EU electricity markets. These should reduce the need for capacity mechanisms to guarantee security of energy supply. The new rules also set out when such mechanisms can be justified and includes minimum requirements on how they have to be set up.
EU State aid rules also continue to apply in full.
Market-based energy prices
Market-based electricity prices are a key component of flexible, efficient and consumer-centered energy markets. Retail electricity prices should therefore be free from government intervention. Targeted price regulation such as social tariffs will be permitted for a transition period to meet the needs of vulnerable consumers until their situation can be addressed by appropriate energy efficiency and social policy measures. In the future, price regulation should be allowed only in exceptional circumstances.