EU Proposing Emergency Intervention in Energy Markets as Household Energy Costs Soar
The EU Commission is proposing an emergency intervention in Europe’s energy markets to tackle recent dramatic price rises. Due to a severe mismatch between energy demand and supply, primarily due to the Russian invasion of Ukraine and Russia’s significant reduction of gas supplies to Europe, the EU is taking steps to ease the burden of rising prices on homes and businesses.
A statement issued to coincide with Commission President Ursula von der Leyen’s State of the Union address, said that the EU is now taking a next step in tackling the issue by proposing exceptional electricity demand reduction measures, which will help reduce the cost of electricity for consumers, and measures to redistribute the energy sector’s surplus revenues to final customers.
President Ursula von der Leyen said, ‘Russian aggression and manipulation is affecting global and European energy markets, and we need to be resolute in our response. Today, the Commission is bringing further proposals to the table which Member States can swiftly adopt and implement, to ease the pressure on households and businesses. We continue to stand united in the face of Putin’s weaponisation of gas and ensure we minimise the impact of high gas prices on our electricity costs in these exceptional times.’
The proposals follow on from previously agreed measures on filling gas storage and reducing gas demand to prepare for the upcoming winter. The Commission is also continuing its work to improve liquidity for market operators, bring down the price of gas, and reform the electricity market design for the longer term.
The Commission is proposing an obligation to reduce electricity consumption by at least 5% during selected peak price hours. Member States will be required to identify the 10% of hours with the highest expected price and reduce demand during those peak hours. It also proposes that Member States aim to reduce overall electricity demand by at least 10% until 31 March 2023.
A second proposal involves a temporary revenue cap on ‘inframarginal’ electricity producers, namely technologies with lower costs, such as renewables, nuclear and lignite, which are providing electricity to the grid at a cost below the price level set by the more expensive ‘marginal’ producers.
These inframarginal producers have been making exceptional revenues, with relatively stable operational costs, as expensive gas power plants have driven up the wholesale electricity price they receive. The Commission proposes to set the inframarginal revenue cap at €180/MWh. This will allow producers to cover their investment and operating costs without impairing investment in new capacities in line with 2030 and 2050 energy and climate goals. Revenues above the cap will be collected by Member State governments and used to help energy consumers reduce their bills.
Thirdly, the Commission is also proposing a temporary solidarity contribution on excess profits generated from activities in the oil, gas, coal and refinery sectors which are not covered by the inframarginal revenue cap.