European Commission calls for emergency intervention in energy markets

EU. The European Commission proposed on Wednesday, September 14, 2022, "an emergency intervention on the European energy markets to address the recent dramatic price increases." While pressure is growing on households as well as businesses since the conflict between Russia and Ukraine, the institution wants to put in place "exceptional measures to reduce electricity demand that will help bring down the cost of electricity for consumers, as well as measures to redistribute excess revenues from the energy sector to end customers," as it says in a statement.

"Russian aggression and manipulation have repercussions on the global and European energy markets, and we must be resolute in our response," comments Ursula von der Leyen. For the President of the European Commission, "Member States can adopt (these proposals) and (implement) them quickly, in order to ease the pressure on households and businesses. We continue to stand united in the face of Putin's instrumentalization of gas and to ensure that we minimize the impact of high gas prices on our electricity costs in these exceptional times."

During her State of the Union address, Ursula von der Leyen made it clear to Russia, "I want to make it clear that the sanctions are not about to be lifted. This is a time for determination, not appeasement". We must therefore act, and quickly, to limit the repercussions of the lack of Russian gas supply.

The European Commission wants to oblige Europeans to reduce electricity consumption by at least 5% during certain peak price hours. "Member States will be required to identify the 10% of hours for which the expected price is highest and reduce demand during these peak hours. The Commission also proposes that member states set a target of reducing overall electricity demand by at least 10% until March 31, 2023," the statement said.

The reduction in peak demand would lead to a reduction in gas consumption of 1.2 billion cubic meters this winter.

At the same time, the European Commission intends to introduce a temporary revenue cap for "inframarginal" power producers at €180 per MWh. These are those who use lower-cost technologies (renewables, nuclear and lignite) and therefore supply electricity to the grid at a lower cost than the price level set by the more expensive "marginal" producers.

"Revenues above the cap will be collected by Member State governments and used to help energy consumers lower their bills," the statement said.

The third emergency response announced is the creation of a temporary solidarity contribution on excess profits generated by activities in the oil, gas, coal and refining sectors, not covered by the "inframarginal" revenue cap. It would be limited in time and collected by member states on profits in 2022 that exceed the average profits of the previous three years by more than 20%. The countries concerned would be responsible for recovering these revenues and redirecting them to energy consumers, mainly vulnerable households, hard-hit businesses and energy-intensive industries.

"We are making an emergency intervention in the design of our electricity market today, capping revenues for lower cost electricity producers and allowing exceptional price regulation measures for businesses and households. This intervention will allow Member States to collect and redirect revenues to those who need them in these difficult times, without compromising the long-term functioning of the market," said Kadri Simson, European Commissioner for Energy.

At the end of July 2022, the Member States of the European Union had already adopted, at the instigation of the European Commission, a plan to reduce their gas consumption and a process of securing energy supplies by filling up to at least 80% of gas storage tanks. "We are now at 84%, so we have exceeded our target. Unfortunately, this is not enough," said Ursula von der Leyen in her annual State of the Union address. She added, "Last year, Russian gas accounted for 40% of our gas imports. Today, this gas transported by pipeline represents only 9%. But Russia is still actively manipulating our energy market. It would rather burn the gas than deliver it. This market no longer works."

These new proposals on September 14, 2022 "would allow regulated electricity prices below cost for the first time and extend regulated prices to cover small and medium-sized enterprises as well," the European Commission says. They are a further step to anticipate the coming winter.