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Franco-German power grab finally ends in compromise

Franco-German power grab finally ends in compromise

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Franco-German power grab finally ends in compromise

EU countries at last resolved a monthslong feud over a reform of the bloc’s electricity market on Tuesday, ending a fierce standoff between France and Germany over the use of subsidies for clean energy projects.

The tug of war turned into a high-stakes political battle over economic competitiveness, risking an upending of EU plans to revamp its power market to turbocharge investment in green energy and slash consumer bills after last year’s energy crisis tied to Russia’s war in Ukraine.

Berlin’s concern was that the new rules would allow France to skim huge profits from its mammoth nuclear fleet and redistribute these to its own industries, giving it a competitive edge. Paris insisted energy policy is a sovereign choice and the bloc benefits from its cheap — and clean — atomic-powered electricity.

The European Commission first presented the proposal in March amid pressure from EU capitals reeling from sky-high energy prices that came as Russia cut gas supplies to the bloc amid tensions with the bloc over its invasion of Kyiv.

The final agreement by EU energy ministers “was complicated to reach,” said Spanish Ecological Minister Teresa Ribera, who holds the rotating presidency of the Council of the EU. She added: “It was fundamental to get the backing of all the member states.”

The deal will “help increase the resilience of the European electricity market to any future price shocks coming from tensions on gas markets,” EU Energy Commissioner Kadri Simson said after the summit. It will also “bring certainty and predictability for the electricity sector to trigger necessary investments in clean energy infrastructure.”

Splitting the atom

The disagreement between Paris and Berlin involved the use of state-backed investment schemes called Contracts for Difference, under which governments and energy developers agree on a fixed rate that firms get for the electricity they produce.

If volatile market prices tumble below that agreed rate, the state reimburses the difference to the energy company as a subsidy. But if spot prices surge above that level, the producer pays the difference back to the government.

The concern from Germany, as well as Luxembourg, Belgium, Denmark, the Netherlands and others, was that France would access huge windfalls by applying CfDs to its existing nuclear reactors, given they supply 70 percent of the country’s electricity at production costs below spot market prices, which it could then redistribute to its industry.

In an attempt to strike a balance between the bloc’s two largest members, ministers agreed that governments “may decide” to apply CfDs to existing nuclear reactors, according to the final draft text obtained by POLITICO, while also asking the Commission to make sure any revenues recouped do “not create undue distortions to competition … in the [EU’s] internal market.”

The discussion was also defined by fears from Berlin that its firms could flee to France, lured by lower energy prices. For its part, Paris is also looking for ways to support its financially struggling state-run utility and nuclear operator EDF while pushing the firm to keep its bills for consumers low as an existing artificial pricing scheme runs out in 2025. 

The issue was so contentious that French President Emmanuel Macron and German Chancellor Olaf Scholz had to discuss it bilaterally at a meeting in Hamburg last week.

Paris was quick to frame the deal as a win, with one Elysée official calling it a “great victory for France.” The agreement succeeded in “protecting French people and their purchasing power, and businesses and their competitiveness,” said the official, who like others was granted anonymity to speak candidly.

Still, EU capitals on the other side of the debate were also pleased with the new guardrails placed on Paris. “This special treatment, which would only have benefited France, has now been completely removed from the EU Commission’s draft,” said one national diplomat.

Tuesday’s agreement came after months of negotiations that had already seen a similar meeting of ministers in June collapse over the disagreement.

It was also far from the first green law held up by a Franco-German scrap. Earlier this year, Berlin put up fierce resistance over an EU ban of internal combustion engines by 2035, while Paris blocked the final approval on rules aiming to roll out renewable energy that it said unfairly excluded nuclear power.

“What some considered as French stubbornness did pay off,” said Phuc-Vinh Nguyen, an analyst at the Jacques Delors Institute think tank, even if Paris’ “case is not fully resolved as it still is subject” to the Commission’s subsidy enforcement powers.

EU capitals will have to agree on the redesign with the European Parliament, with inter-institutional negotiations set to begin Thursday.

For now, the agreement is a “pleasant sign” for the clean energy industry facing inflationary pressures and increasing competition with the U.S. and China “in a moment where they’re desperately looking for a light at the end of the tunnel,” Nguyen said.

Giorgio Leali, Clea Caulcutt, Zia Weise and Alexandre Léchenet contributed reporting.

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