The mandatory reduction in electricity demand during peak hours, a cap on the revenues of electricity producers using low-cost sources, and a temporary solidarity levy on the excess profits of fossil fuel companies, are the three emergency measures included in the European Commission’s plan to reduce energy prices.
The Commission also emphasizes that it is continuing its work to reduce natural gas prices and reform the electricity market in the long term.
The European Commission today released its plan to address the recent dramatic rise in prices, noting that «The EU is facing the consequences of a serious imbalance between energy supply and demand, which is largely due to Russia’s continued use of its energy resources as a political tool.».
The first measure proposed by the Commission to address high prices is to reduce demand. This can influence electricity prices and have an overall stabilizing effect on the market. Targeting the most expensive hours of electricity consumption, when gas-fired power generation has a significant impact on prices, the Commission proposes a mandatory reduction in electricity consumption of at least 5% during selected peak hours. Member States should identify the 10% of hours with the highest expected price and reduce demand during peak hours. The Commission also recommends that Member States aim to reduce total electricity demand by at least 10% by March 31, 2023. Member States may choose the appropriate measures to achieve this reduction in demand, which may include financial compensation. The Commission estimates that reducing demand during peak periods would lead to a reduction in natural gas consumption of 1.2 bcm during the winter. Improving energy efficiency is also a key part of meeting our climate commitments under the European Green Deal.
Second, the Commission proposes a temporary revenue cap for «below-threshold» electricity producers, specifically lower-cost technologies such as renewable energy sources, nuclear power, and lignite, which supply electricity to the grid at a cost lower than the price level set by the most expensive generators. These «under-marginal» generators have exceptional revenues, with relatively stable operating costs, as expensive natural gas-fired power plants have driven up the wholesale price of electricity they receive. The Commission proposes setting the cap on marginal revenues at 180 euros/MWh. «This will allow generators to cover their investment and operating costs without reducing investments in new capacity in line with our energy and climate targets for 2030 and 2050,» the Commission notes. Revenues above the cap will be collected by Member State governments and used to help energy consumers lower their bills. In addition, Member States that trade in electricity are encouraged, in a spirit of solidarity, to enter into bilateral agreements to share a portion of the under-cap revenue collected by the producing Member State for the benefit of end users in the Member State with low electricity production. These agreements will be concluded by December 1, 2022, when a Member State’s net electricity imports from a neighboring country amount to at least 100%.
Third, the Commission proposes a temporary solidarity levy on excess profits generated by activities in the oil, natural gas, coal, and refineries. «This time-limited contribution will preserve investment incentives for the green transition,» the Commission states. It will be collected by Member States on profits from 2022 that have increased by more than 20% compared to the average profits of the previous three years. The revenue will be collected by Member States and redirected to energy consumers, particularly vulnerable households, companies that have been severely affected, and energy-intensive industries. Member States may also finance cross-border projects in line with the REPowerEU objectives or use part of the revenue for co-financing and for measures to protect employment or promotein renewable energy sources and energy efficiency.
As Commission President Ursula von der Leyen announced on Wednesday, September 7, the Commission will also continue to explore other ways to lower energy prices for European consumers and industry and to ease pressure on the market. The Commission emphasizes that it will deepen its discussion with Member States on the best ways to reduce natural gas prices, while also exploring various ideas for price caps and strengthening the role of the EU Energy Platform in facilitating lower-price agreements with suppliers through voluntary. The Commission will also continue to work on tools to improve liquidity in the energy utilities market and will review the temporary crisis framework for state aidto ensure that it continues to allow Member States to provide necessary and proportionate support to the economy, while ensuring a level playing field.
It should be noted that at the extraordinary Energy Council meeting on September 9, the energy ministers of the member states approved the Commission’s ongoing work in these areas.
