EU to put the brakes on energy prices

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The state of affairs on the European fuel and electrical energy market has worsened dramatically. Prices are exploding as a consequence of Russia’s warfare towards Ukraine and the stability of the energy provide may very well be threatened in the coming winter.

For these causes, European Union energy ministers are assembly on Friday for what the official invitation calls “exchanges of views.”

Formal choices haven’t been promised however time is of the essence. The European Commission needs a mandate to put together interventions in the bloc’s electrical energy and fuel markets, with President Ursula von der Leyen saying this Wednesday that she needs to current a primary draft of a regulation containing drastic measures by early subsequent week.

After confidential dialogue papers in Brussels had been printed in the media, von der Leyen spoke to the press on quick discover Wednesday to suggest 5 measures towards the energy worth disaster. She additionally defined her proposals in individual to the EU ambassadors of the 27 member states, a extremely uncommon step that underscores the seriousness of the state of affairs.

So simply what’s the EU Commission proposing?

Energy financial savings

For peak durations of electrical energy consumption (morning and early night), EU member states are to make binding commitments to scale back consumption. This is as a result of costly gas-fired energy vegetation have to be revved up to cowl consumption throughout these instances. Von der Leyen didn’t give a concrete determine on how large the reductions can be, however in Commission circles there’s speak of not less than 10%. Member states had already dedicated to lowering fuel consumption by 15% in winter, however solely on a voluntary foundation. Hungary rejected the measure fully, and it stays to be seen whether or not all member states will now agree to save electrical energy.

Capping renewable energy income to subsidize electrical energy payments

As a worth brake, the EU Commission proposes that firms that generate electrical energy cheaply from the solar, wind or water have to pay a brand new levy. This is meant to make up the distinction between these sources and gas-generated electrical energy which, as the costliest type of electrical energy on the market, units prices for producers.

The levy would skim off the higher income from some kinds of electrical energy era, income which are solely realizable due to the skyrocketing worth of fuel. These are income that producers “by no means dreamed of,” von der Leyen stated. The income ought to then be handed on by EU member states to poorer shoppers and struggling businesses to subsidize their electrical energy payments. The present “benefit order” system of setting prices by the costliest kilowatt-hour wouldn’t be modified, however income can be skimmed. The worth of electrical energy would proceed to be decided each day by the market on the European energy alternate.

A tax on extra income for oil and fuel firms

Companies which have made extraordinarily excessive income in current months on account of increasing oil and fuel prices are to pay a “solidarity contribution,” von der Leyen introduced. She prevented utilizing the time period “extra income tax,” which is seen as controversial by Germany governing coalition. Just how excessive this “contribution” must be and precisely the place it will likely be spent stays open. But inexperienced energy gained’t be the solely goal of measures. “Because all energy sources should assist to overcome this disaster,” she stated.

Ensuring a steady electrical energy market

Record electrical energy buy prices and dwindling affords pose an actual danger to provide, the Czech presidency of the EU has warned. The market wants extra liquidity in order that the sophisticated community of short- and long-term provide contracts, choices and derivatives can proceed to perform. The European Central Bank ought to pump extra money into the market, strict buying and selling guidelines must be relaxed, and a few derivatives must be eliminated, in accordance to a confidential working paper of the Czech presidency. The chapter of an energy provider in the EU shouldn’t lead to a wave of bankruptcies and misery amongst banks that finance electrical energy buying and selling, it stated. The EU Commission is proposing help for ailing utilities with loans or state assist, and the EU guidelines are to be up to date quickly.

Capping fuel prices

The EU Commission is advocating a worth cap for what little fuel continues to be being equipped from Russia. This would imply that Russian President Vladimir Putin may not make ever growing income. The EU now will get solely 9% of its pure fuel from Russia, in contrast to 40% a yr in the past. Von der Leyen is throwing warning to the wind over Putin’s risk to cease supplying fuel if an EU worth cap is launched. We shouldn’t be impressed, she stated, including that 13 EU member states already not obtain any fuel from Russia. She additionally didn’t rule out limiting the worth of liquefied pure fuel (LNG) equipped from the United States or the Middle East, although the EU should stay aggressive with different areas that additionally buy LNG.

Will EU member states play alongside?

Von der Leyen appears satisfied that these measures may very well be carried out shortly and without a lot resistance. “The skimming of income as an emergency instrument, in the quick time period and in a time of disaster, has a legal foundation at the European degree,” von der Leyen stated just a few days in the past at a closed-door assembly of the conservative Christian Democratic Union’s parliamentary group in the Bundestag, Germany’s decrease home of parliament.

However, the introduction of those measures would require Spain, Italy and Greece to change their techniques once more. They had already launched an extra income tax for energy firms and, in some instances, worth caps. This tax would have to be deserted as a result of an EU-wide levy for affordable energy era would have the similar impact. German Chancellor Olaf Scholz has already signaled approval for such a levy. High electrical energy prices couldn’t be justified, he stated in a speech in Prague on August 29, including that it was a matter of focused reduction for residents. A number of days later, Scholz burdened that he was in favor of a fast EU-wide regulation, and that Germany was additionally ready to go it alone if needed. But French President Emmanuel Macron can be stated to approve of the EU Commission’s proposals in precept, experiences the French news outlet Le Monde.

Should electrical energy nonetheless be traded EU-wide?

The EU Commission, the Czech Council Presidency and consultants from the Brussels-based financial suppose tank Bruegel all favor sustaining the comparatively deregulated European electrical energy market, on which electrical energy is purchased and offered throughout borders. This is the solely manner to guarantee provide safety in all member states, they are saying. Plus, electrical energy generated on an solely nationwide foundation can be much more costly than it’s at present as a result of every nation would wish a fossil-fuel energy plant park for base and peak masses.

France’s present energy provide would collapse without cross-border commerce as a result of the nation imports 12% of its electrical energy from Germany and Italy due to faulty nuclear energy vegetation of its personal. But in 2021, France was nonetheless a significant exporter of electrical energy, and is predicted to be once more quickly. The common enchantment is to join as many energy vegetation as doable to the grid to enhance provide. This additionally applies to Germany’s final three nuclear energy vegetation in operation, solely two of which the Economy Minister Robert Habeck, of the environmentalist Greens, needs to hold on standby for emergency operation.

Hungary, the wild card

An enormous unknown is how Hungary will reply to new insurance policies being fashioned amid the energy disaster. Prime Minister Viktor Orban is the solely EU head of presidency who has agreed to a particular worth for in depth Russian fuel provides with the Kremlin. As a consequence, the worth of electrical energy in Hungary has fallen in contrast to final yr, whereas it has quadrupled in the Baltic states, for instance.

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