EU countries eye tighter subsidies in hunt for energy market deal - draft

By Kate Abnett

BRUSSELS (Reuters) - European Union countries are considering stricter limits on state aid for power plants in an upcoming revamp of Europe's electricity market, after disagreements between Germany and France over the issue sunk a deal last week.

EU energy ministers failed to agree the reforms last week, after countries including Germany, Austria and Luxembourg opposed plans to grant fixed-price power contracts with the state to existing power plants, which they said could distort the EU market by giving some states a competitive edge.

EU diplomats said the concerns centred around the potential use of these subsidies for French nuclear plants.

France, which had supported the subsidy proposal, has pushed in recent talks on various EU laws for more favourable treatment of low-carbon nuclear energy, which it says is crucial to meet climate goals.

A new compromise proposal, seen by Reuters, said countries could offer the subsidies to only those existing plants where a substantial investment was made covering at least 50% of the plant's value and prolonging its lifespan by a decade or more.

The proposal by Sweden, which holds the EU's rotating presidency until Saturday and is racing to reach a deal before then, also added conditions to avoid "overcompensation" of these plants.

EU countries' ambassadors will debate the proposal on Friday.

The planned electricity market reform aims to make Europe's power prices more stable, and avoid a repeat of last year's energy crisis, when record-high gas prices left consumers with soaring bills.

Countries had also clashed over a late proposal to let countries extend coal power subsidies under the reform, which some capitals warned would undermine Europe's efforts to fight climate change.

Poland, which could prolong its capacity mechanism support scheme for coal plants beyond 2025 under the proposal, said it was needed for energy security.

The latest draft would still allow countries extend coal subsidies until 2028, but added conditions including that they assessed the impact on CO2-cutting targets.

Once they agree to a common position, countries must negotiate the final power market reforms with the EU Parliament.

(Reporting by Kate Abnett; editing by Diane Craft)