Filenews 2 September 2022
An urgent intervention in European electricity markets may reduce prices, but it will not protect the region's economy from the spill-over effects of a historic energy crisis, according to the Commission.
The European Union is working on measures to limit the cost of electricity, as Russia limits the shipments of gas necessary to supply the power plants a few weeks before the start of the heating season. The Commission is considering a package of measures that includes a reduction in electricity demand and a cap on the prices of energy produced from renewable sources (RES), nuclear plants and coal-fired, according to a document found to the knowledge of Bloomberg agency.
While intervention tools "can help mitigate the effects of the energy crisis, especially for certain categories of consumers, they will not bring energy prices back to pre-crisis levels or eliminate the significant impact of the crisis on both inflation and the European economy as a whole," the Commission said in that document. "Given the fundamental economic aggregates affecting energy markets at the moment, we do not see any type of market intervention that would have such an effect in the short term."
European gas prices have fallen from the record level in recent days, but are still more than four times higher than a year ago. Electricity prices also remain well above normal levels.
The EU has already agreed to look for alternatives to natural gas sources, to strengthen the shift towards RES, to strengthen gas storage requirements and to set voluntary demand reduction targets so that there are no power outages in the winter.
As European governments are constantly under pressure to act, energy ministers are scheduled to discuss options for intervention at an extraordinary meeting on 9 September. Czechia, which holds the rotating EU Presidency, is due to present its own proposal. Jozef Sikela, the country's minister of industry and trade, proposed earlier this week to impose a cap on the price of gas used to produce electricity.
The options proposed by the Commission are "a much more sensible approach than the introduction of a cap on the cost of gas embedded in electricity prices," said Fabian Ronningen, energy analyst at Rystad AS.
The Commission states in the document that short-term intervention to contain electricity prices would work best as a combination of three factors:
- Demand reduction based on a mandatory gas demand reduction model included in a winter readiness regulation agreed by member states in July
- Price cap for non-gas energy production technologies whose operating costs are lower than those of plants using natural gas.
- Revenue from the price limit - essentially an extraordinary tax - that would help finance interventions in retail prices.
To reduce energy demand, governments could call on industrial consumers to bid on how much they would accept to be paid to reduce consumption. Households could also receive incentives to limit energy use, according to the document.
Capping energy prices from res, nuclear power or coal combustion could be either mandatory for all EU members or optional and could be more easily applied to the day-ahead market.
Limiting the revenues of electricity producers would then provide additional funds for state budgets, which could be used to reduce the amount of consumers' energy bills through regulated tariffs, direct income support or a reduction in contributions.
"The introduction of such a cap would not be compatible with the parallel systems of taxation of excess profits, which should be abolished," the Commission said.
The Commission also recommended that options such as the complete suspension of the wholesale electricity market, the introduction of a cap on wholesale electricity prices and the extension of a price-limiting mechanism introduced in Spain and Portugal across the EU should not be followed.
Intervention measures could be proposed either by the Commission in the form of recommendations or in the form of legislation that would allow governments - but would not oblige them - to intervene in the market. The third option would be to instruct all Member States to intervene.
According to EU diplomats, the Commission is due to discuss options with experts from member states at a meeting on September 7th.
"In general it makes sense, but the devil is definitely in the details: how exactly can you channel these profits?" said Hanns Koenig, chief executive officer of Aurora Energy Research. "Certainly prices will not return to the levels that were in place two or three years ago, but the re-channelling of the profits of energy producers is expected to allow governments to significantly subsidize the energy costs of households and businesses."
Source: Capital.gr
