Filenews 17 October 2021 - by Theano Thiopoulou
Natural gas prices are likely to remain high during the winter months and to decrease in the spring, when the situation is expected to stabilise, according to the estimate included in an informative text of relevant questions and answers published on Wednesday by the Commission, on the sidelines of the recommendations it addressed to the governments of member states, to take concrete measures to address the energy crisis and relieve vulnerable consumers and on business. However, the European Commission estimates that electricity prices will remain above the price average of recent years. The seven questions - answers of the European Commission, which express market expectations, outline the situation and essentially confirm that de facto and out of need the funds of the Member States will be burdened to alleviate the problems caused and which will intensify as the demand for electricity increases during the winter months.
We shall then give a presentation of the main points of the questions and answers, as prepared by the Commission's department.
1. Why did the Commission adopt an Energy Price Communication?
The European Union, like many other regions in the world, is currently facing a sharp rise in energy prices. This is a serious concern for citizens, businesses, the European Commission and governments across the EU. The current increase is mainly due to increased global demand for energy, in particular natural gas, and is supported by the recovery of the global economy. While fluctuations in energy prices have also occurred in the past, this year the situation is extremely difficult, as European households and companies face the prospect of a higher price in bills, at a time when many have been hit by a loss of income due to the pandemic. This could weigh on the recovery of Europe's economy. There is also a risk of confidence and support for the clean energy transition, which is needed not only to prevent catastrophic climate change but also to reduce the EU's vulnerability to the volatility of fossil fuel prices.
The European Commission aims to help and support Member States in addressing the negative impact on households and businesses. Having listened to the Member States, the European Parliament has prepared and will support appropriate measures to mitigate the impact of the current increases in energy prices.
2. How long is the current situation expected to last?
Market expectations for energy products suggest that it is likely that the current price increases are likely to be temporary. Wholesale gas prices are likely to remain high in the winter months and fall in the spring, when the situation is expected to stabilise. Prices will, however, remain higher than the average of previous years.
In the longer term, greater investment in renewable energy, further promotion of energy efficiency in buildings and smarter energy systems in Europe will increase the EU's energy independence from imported fossil fuels and help reduce wholesale energy prices. However, in the medium term, further episodes of price volatility in wholesale markets cannot be ruled out, for various geopolitical, technological and economic reasons.
3. Does the Commission expect gas to be depleted by EU Member States this winter?
While energy supply is not directly at risk, security of supply and constant monitoring of gas storage levels are needed. Current gas storage levels in the EU are slightly above 75%. This figure is below 90% of the average currently over the past 10 years, but storage levels have been steadily increasing since the summer.
Together with the EU Expert Group on Security of Gas Supply ('Gas Coordination Group') and the European Network of Transmission System Operators for Gas (ENTSO-G), the Commission has been closely monitoring the security of supply situation, including the level of gas storage and imports.
4. What measures does the Commission propose to address the current price increase?
The current rise in prices requires a quick and coordinated response. The existing legal framework enables the EU and its Member States to take action to address the consequences of sudden price fluctuations. An immediate response should give priority to adapted measures, which can quickly mitigate the impact on vulnerable groups and can be easily adapted when the situation improves. In the medium term, the policy response should focus on making the EU more energy efficient, less dependent on fossil fuels and more resilient to energy price increases. The toolbox presented, as part of this communication, allows for a coordinated approach to protect those most at risk. It is carefully structured to achieve the above goals.
● Immediate measures to protect consumers and businesses: Exceptional income support for vulnerable consumers, for example through vouchers or partial payment of bills, which can be supported with revenues from the EU Emissions Trading System (ETS). Authorization of temporary deferments of account payments. Provide temporary, targeted reductions in tax rates for vulnerable households. Assisting companies or industries in line with EU State aid rules. Facilitating wider access to and support for renewable energy purchase agreements through accompanying measures.
● Medium-term measures for a resilient energy system: Strengthening investments in renewable sources, renovations for energy efficiency and acceleration of auctions of renewable energy sources (tenders) and licensing procedures. Consider a revision of the Security of Supply Regulation, better use and operation of gas storage in Europe. Creation of new cross-border regional groups to analyse risks and advise Member States on the design of national prevention and emergency action plans.
Strengthening the role of consumers in the energy market, enabling them to choose and change suppliers, to produce their own electricity (net metering, net billing) and to participate in energy communities.
5. How does the EU's internal energy market work and what is the reason for high prices?
Before, the European energy system was characterised by energy monopolies, leading to an expensive, inefficient system that did not allow customers to benefit from competition between energy companies. The internal energy market has removed the EU from this situation. The current market design allows all EU citizens (in Cyprus the competitive market is expected to operate in late 2022 or early 2023) to choose between different electricity and gas suppliers.
The internal market also facilitates the empowerment of consumers by integrating them into energy communities or generating their own electricity. The wholesale electricity market is the energy producers (power stations), who sell electricity and the energy retailers buy to deliver it to their customers.
The wholesale electricity price is one of the elements of the final electricity bill that consumers pay. The final electricity bill also reflects its transmission and distribution costs (network costs), taxes and levies. On average, each of the three components of the electricity bill makes up one third of the total bill, with some variation between Member States.
With the current wholesale electricity price rising from global gas prices, some have questioned whether this market model is still appropriate. However, the Commission is now tasking ACER (the Agency of European Energy Regulators) with examining the benefits and disadvantages of the current market model and its implementation by Member States. The aim is to ensure that market design continues to serve needs.
Minimal extra quantities of natural gas from Russia
6. Are external energy suppliers to blame for the current situation?
The current increase in the price of electricity is mainly due to global demand for natural gas, which is soaring as the economic recovery accelerates. The effects are being felt not only in the EU but also in other regions of the world. Given the global nature of the current price increase, international cooperation in the field of supply, transport and gas consumption can help keep prices under control. The Commission is in dialogue with the main gas producing and consuming countries to manage the increase in gas trade. This dialogue with our international partners aims to enhance the liquidity and flexibility of the international gas market in order to ensure adequate and competitive natural gas.
There was a lower than expected volume of gas coming from Russia, making it difficult for the market as the period of increased heating needs approaches. Although it has fulfilled its long-term contracts with the European Union, Gazprom has offered little or no extra capacity to reduce pressure on the EU gas market. Delayed infrastructure maintenance (e.g. pipelines) during the pandemic has also limited the supply of gas from Russia and other suppliers.
The EU's climate policy is not to blame
7. Is the EU's climate ambition or carbon pricing responsible for the rise in prices?
The current situation is not the result of the EU's climate ambition. Renewable energy prices continue to be lower and more stable than fossil fuels. Investments in clean household energy production and greater energy efficiency reduce the EU's energy import bill and dependence on non-EU suppliers.
The effect of the increase in the price of natural gas on the price of electricity is nine times greater than the effect of the increase in the price of coal. From January 2021 to September 2021, the EU's (EU Emissions Trading System) ETS price increased by approximately €30/tCO2, which translates into a cost increase of approximately €10/MWh for the electricity produced from gas (with an efficiency of 50%) and about €25/MWh for electricity produced from coal (40% efficiency). This is clearly exceeded by the observed increase in the price of natural gas, approximately €45/MWh over the same period, which translates into an additional cost of generating electricity of about €90/MWh.
High gas prices contribute to the increase in the price of coal, as they lead to increased use of coal for energy production and therefore cause greater demand for emission allowances
