The European Commission (EC) has proposed an emergency intervention in Europe’s energy markets to resolve the dramatic price rise, as mentioned in EC’s announcement published on Wednesday, 14 September.
The European Union has faced consequences that came from imbalance between supply and demand of energy, which is believed to be the result of Russia using its energy resources as a weapon.
To reduce the growing pressure this creates for European households and enterprises, the EC proposes emergency measures to reduce electricity demand. This is also intended to assist consumers reduce costs, as confirmed by the commission.
The first step to resolve the high prices problem is reducing demand, which could affect electricity prices and calm the market in general.
Hours during which electricity is the most expensive have one of the biggest impact. This is when gas power stations and the energy they produce have the biggest impact on prices. EC proposes making a duty to reduce electricity consumption by at least 5% for peak electricity consumption hours.
Member states will have to take note of 10% of hours at which electricity price is expected to peak. During these hours they will have to reduce demand. EC also proposes member states are to reduce general electricity demand by at least 10% until 31 March 2023. To accomplish this, member states may pick appropriate measures, including monetary compensation.
By reducing demand during peak hours, gas consumption could be reduced by 1.2 billion m3 during winter.
EC also proposes imposing a temporary cap on revenue for «inframarginal» electricity producers – technologies with lower costs, such as renewable energy resources, nuclear energy and lignite – that supply electricity to the network for costs lower than the price level set by more expensive «marginal» producers.
These inframarginal producers, with their operational costs remaining relatively stable, have gained unexpectedly high revenues. This is why expensive gas power plants have a very high impact on wholesale prices.
EC proposes setting an inframarginal revenue cap at 180 EUR/MWh.
This will allow producers cover their investment and operational costs without interfering with investments into new outputs outlined in EC’s goals for energy and climate for 2030 and 2050. Revenues that exceed the cap will be diverted to the governments of member states and used to help energy consumers reduce electricity bills.
Member states that sell electricity are invited to sign mutual solidarity agreements in order to divide part of the inframarginal revenues collected by the producer’s home country among end users in member states in which not a lot of electricity is produced. Such agreements would be signed before on 1 December 2022 if member states’ net imports from neighbouring countries is at least 100%, EC explains.
Thirdly the committee proposes temporary solidarity fees from excessive revenues gained from operations in oil, gas, coal and refinement sectors and not subject to the inframarginal revenue ceiling.
This limiter time fee would help preserve investment stimuli in favour of transitioning to green economy. Member states will collect it for revenue of 2022 that exceeds 20% of the increase when compared to the average revenue from the previous three years. Revenues will be collected by member states and will be diverted towards energy consumers, especially the least protected households, companies impacted the most by the crisis and energy-intensive industries.
EC proposes the intervention may go even further – to assist consumers, it is necessary to expand the expand the available Energy Price Toolkit.
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