As European energy ministers convene for their meeting this Thursday, France and Germany find themselves in a struggle to reach a compromise regarding energy market reform.
Despite unseasonably warm temperatures in October, Europe is slowly heading into winter, marking the second winter since the beginning of the conflict in Ukraine, which prompted Russia to cut off gas supplies to the continent.
Following a surge in prices last winter, when gas and electricity bills nearly doubled across European capitals, the European Union decided to take necessary actions.
In March, the European Commission proposed reforms to boost renewable energy sources, better protect consumers, and enhance industrial competitiveness.
However, France and Germany are currently grappling to find a middle ground amidst the ongoing debate over Contracts for Differences (CfDs). CfDs are financial agreements between electricity producers and governments. Under CfD terms, the government agrees to pay a fixed price per unit of electricity generated, regardless of the prevailing market price. If the market price exceeds the CfD strike price, the producer pays the difference to the government, but if the market price falls below the strike price, the government pays the difference to the producer.
By providing a guaranteed price for electricity, CfDs aim to support investments in renewable energy projects.
France, which possesses 56 nuclear reactors, is pressing for the inclusion of nuclear energy in CfDs. However, Germany has raised suspicions that France seeks an exemption that would grant its industry a competitive advantage and insists that it should apply only to new investments.
This dispute lies at the heart of the bilateral talks taking place in Hamburg this week between the French and German governments.
French President Emmanuel Macron pledged to regain control over electricity prices at both the national and European levels in a speech he delivered at the end of last September.
Due to the significantly higher cost of gas-generated electricity compared to nuclear-generated electricity, France leans toward transitioning to a national system rather than adopting the European model to enhance its economic competitiveness.
Nevertheless, Macron stated on Friday that France is “confident” it will reach an agreement with Germany regarding electricity market reforms.
France is supported by 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.
Even if a last-minute agreement is reached, the energy conflict between the two countries is seeping into all current European negotiations on this matter.
Germany aims to expand wide-ranging electricity networks across the continent to import energy, whereas France depends on energy sovereignty and domestic production.
France also wants to have the capability to use nuclear energy for clean hydrogen production, a move that Germany remains hesitant about, among other issues.
Competition has intensified notably since the country passed the Inflation Control Act last year, a massive program of government aid designed to assist companies in increasing production of advanced green technology.