European proposal to decouple electricity prices from gas prices.

European proposal to decouple electricity prices from gas prices.

Here are the options considered by the European Commission and sent by official mail to the different states.

What is written and proposed is very important for the future of European energy policy as well as for the future of inflation. Indeed, these measures, although non-monetary, would be likely to bring down inflation considerably in the euro zone.

I’ll spare you the introductory babbling on the causes of the current energetic mess.

At the big Commission, we are beginning to realize that the European citizen will not be able to pay 10 or 15,000 euros per year in heating bills without this resulting in a revolt that will make the vest movement look like cat pee . Not everyone is a yellow vest. Everyone heats up and needs energy.

Options considered

A) Decoupling/limiting the impact of the gas price on the electricity price

– Temporarily cap the price of gas used for electricity production;

– Temporarily cap the price of gas imported from certain jurisdictions;

– temporarily exclude the production of electricity from gas from the order of merit and from the fixing of prices on the electricity market.

B) Increase market liquidity

– Immediate support through credit lines for market participants facing very high margin calls including the case of a specific solution at European level, for example through the role of the ECB;

– Changing trading rules on energy exchanges, for example by temporarily modifying regulatory requirements for guarantees in electricity trading. regulatory requirements for guarantees in electricity trading, including the revision of automatic price cap adjustments. Automatic price cap adjustments;

– Temporarily suspend electricity derivative markets in Europe; or subject futures trading to specific ranges.

C) Coordinated electricity demand reduction measures

– Demand reduction measures in the electricity sector, for example similar to the coordinated demand reduction measures in the gas sector adopted in July 2022. demand reduction measures in the gas sector, such as adopted in July 2022.

D) Limitation of revenues of inframarginal electricity producers

– Temporarily cap the price of electricity earned by infra-marginal producers.

E) Impact of the EU Emissions Trading System

– Assess the possibilities of using the EU emissions trading system to deal with the current high electricity prices and ensure that the Council takes the necessary measures quickly. Ensure that the Council moves quickly towards an agreement on the recovery chapters of REPowerEU (Recovery and Resilience Plans (RRFs), including the possibility of using Market Stability Fund quotas.

– security of electricity and gas supply at European level should be preserved;

– the internal energy market and the advantages flowing from it must be preserved;

– the measures should not lead to an increase in gas consumption, nor jeopardize efforts to reduce gas consumption in Europe

– the measures should be simple to implement and coordinated at EU level;

– the measures should mitigate the impact on consumers’ energy bills;

– consistency with the objectives and implementation of the European green contract. The above emergency measures options are designed as an immediate response to the current extraordinary situation. However, we should continue to discuss a systemic upgrade of the design of the internal energy market, so that it is easier to manage and better prepared for similar market conditions in the future.

Such an upgrade must be properly studied, based on in-depth analysis and impact assessment and take into account the progressive implementation of a future decarbonized energy market.

Issues:1. Do you agree that it is necessary for the Commission to propose EU-wide measures to be adopted in time for the next heating season? If so, which of the options described or alternative options should be pursued?

2. What type of specific instruments would you consider appropriate to achieve a rapid resolution of the above-mentioned problems?

Charles SANNAT

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