Consumers in the European Union will be better protected from strong fluctuations in electricity prices after EU ministers approved a market reform on Tuesday.
The reform leads "the way for a more stable, predictable, and sustainable energy market," said Belgian Energy Minister Tinne Van der Straeten in a statement.
The reform is intended to insulate EU consumers from dramatic surges in electricity prices, such as those seen last year after Russia reduced fuel exports to the bloc.
New long-term contracts between governments and electricity producers, under which the state would chip in if the market price drops below an agreed price, are central to the reform efforts.
This is meant to incentivize domestic green and nuclear power production by ensuring a return on investments.
Representatives from EU member states and the European Parliament signed off on the market reforms in December in Strasbourg, France after protracted and difficult talks.
The electricity market in the EU works according to the merit-order principle, defining the order in which power plants connected to the electricity exchange are used to deliver energy and to determine the market price.
Those that can produce electricity at relatively low marginal cost, like wind farms, are used first to cover demand. But as demand rises beyond those initial sources' capabilities, higher marginal cost sources are used.
The final price therefore depends on which sources need to be used to meet demand, as well as fluctuations in the costs of using those sources. For example, a surge in natural gas prices raises the cost of using gas-fired power plants.