Brussels plans to cap electricity prices at 200 euros per megawatt hour

Ursula von der Leyen, présidente de la Commission européenne

Posted Sep 7, 2022, 1:50 PMUpdated on Sep 7, 2022 at 5:36 PM

It is a radical plan proposed by the European Commission to mitigate high energy prices in order to relieve both consumers and businesses and prepare for next winter.

Electricity savings imposed at peak times, a cap on the price of electricity, another on that of Russian gas and the recovery of excess profits from electricity and oil companies… are all measures unveiled on Wednesday by Ursula Von der Leyen, the President of the European Commission (EC), on which the European energy ministers will work on Friday during an extraordinary council.

“We must act as quickly as possible,” she said, while some believe that the Commission was too slow to take its decisions. Ambitious and complex, the plan already promises to be a headache for its implementation, both from a technical and legal point of view.

” Times are hard “

The urgency is strong while all over the world energy prices are soaring and that Russia has partially or totally cut off gas to thirteen member states of the European Union.

While the Brussels executive now clearly advocates its intention to cap Russian gas prices to reduce Russia’s income, Vladimir Putin has already warned that his country will no longer deliver oil and gas to countries that take such action.

The Commission says it is well prepared for the winter. “We benefit from a common stock of 82% whereas we had set ourselves a target of 80% for October”, pointed out Ursula von der Leyen, assuring that this cap could “intervene quickly”. Today Russian gas only represents 9% of the gas imported into Europe, compared to 40% at the start of the war in Ukraine.

But the flagship measure that focuses all attention is the one planned to cap the price of electricity produced by non-gas companies (wind farms, nuclear and coal-fired power plants) at 200 euros per megawatt hour. A figure that the President of the EC did not comment on and which was withdrawn from the version of the text of the European Commission communicated to journalists… The latter did not exclude a ceiling on other gases such as liquefied natural: “the project is on the table”, she said.

The Commission also recommends “smart energy savings” which would imply a binding target for reducing electricity consumption during peak hours, when it is most expensive.

How ? It is up to the Member States to define it. Brussels suggests “introducing auctions through which specific categories of consumers (for example, industrial consumers) would submit bids on the amount of financial compensation they would need to reduce their consumption”. Clearly, the state would buy companies commitments to consume less at peak times. The greater the savings, the higher the financial compensation.

Ceiling on Russian gas

The financing of this measure would be ensured by a draining of the superprofits of energy. Thus, companies producing low-cost energy making exponential profits will be asked to redistribute this “rent” to vulnerable consumers, to companies.

The same goes for the profits of fossil fuel companies. The EC advocates a “solidarity contribution” from these oil and gas companies. Is it a contribution on the exploitation and production of gas and oil on the territory of the Union or a broader levy on oil companies based in the Union? The Council of Ministers on Friday will have to clarify its intentions.

Energy suppliers who are struggling to cope with soaring prices must be offered “liquidity support” by the Member States, further suggests the Commission, which promises to authorize the rapid provision of public guarantees. “Times are tough and it will last,” warned Ursula von der Leyen. The ball is now in the court of the Member States.

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