According to a European Commission ‘non-paper’ obtained by EUROPE on Thursday 1st September, the institution believes that emergency measures to tackle rising electricity prices in the EU should consist of a package of three “interrelated” components: - coordinated reduction of electricity demand; - price capping for sub-marginal power generation technologies; - national measures to support consumers.
The first measure is based on the approach that has been recently adopted for gas.
At the beginning of August, EU Member States adopted a proposal for a regulation to reduce their gas demand by 15% between 1 August 2022 and 31 March 2023 in order to prepare the Union for a possible total suspension of Russian gas deliveries (see EUROPE 13000/1).
The European Commission therefore envisages the introduction of a recommendation or obligation (the text does not give a decision on this issue at this stage) for Member States to achieve a static target for reducing overall electricity demand and to reduce peak demand in certain circumstances in the form of a dynamic target.
To achieve these objectives, Member States could introduce tendering systems whereby certain categories of consumers (e.g. industrial consumers) would offer to reduce their electricity consumption in exchange for a certain amount of compensation, which is similar to a system existing in some Member States for gas.
For end consumers such as households, demand reduction could be encouraged by rewarding consumers who reduce their consumption (for example, on a monthly or annual basis), according to the Commission.
Another possibility mentioned in the paper is to introduce demand reduction targets for certain categories of consumers.
While the primary aim of the measure is to reduce demand for electricity in order to bring down market prices, it would also support the EU’s efforts to preserve security of energy supply and decarbonise.
On the other hand, a reduction in demand organised by means of tenders implies a cost for public finances since it requires compensation. “Depending on how such tenders are conducted, the relevant compensation may qualify as State aid, requiring prior approval (by the Commission)” the document further states.
Capping of electricity prices
The second measure in the Commission's proposed package is to set a ceiling with regard to the electricity price charged to sub-marginal generators, i.e. generators whose marginal costs are lower than those of gas-fired power plants (most renewables, nuclear and lignite) in order to ensure that they do not benefit from revenues that are significantly in excess of their costs.
Some generators benefit from a particularly high price compared to their costs because the wholesale price on the EU electricity market is currently aligned with the marginal cost of production of gas-fired power plants, according to the ‘merit order’ system.
This capping would apply to the day-ahead market auction and “would lead to extra financial benefits for Member States”. They would then be obliged to share this additional revenue with consumers in order to lower their electricity bills.
The European Commission warned that “the introduction of capping such as this would not be compatible with parallel excess profit taxation schemes, which would have to be abolished”.
Moreover, the impact of this measure will vary from one Member State to another since the amount of revenue that is collected is linked to the amount of electricity produced from sub-marginal technologies; this itself depends on the energy mix and the support schemes in place for renewable energy in each Member State.
Again, the paper does not make a decision as to whether the implementation of this ceiling by Member States is optional or mandatory.
Supporting national measures
The European Commission also plans to provide greater legal certainty for the efforts made by Member States to protect certain types of consumers from the impact of high electricity prices through the use of regulated tariffs.
The paper thus mentions the possibility of a legislative initiative to provide for a clear derogation from EU provisions on regulated tariffs to that Member States are also able to cover SMEs and to design regulated tariffs in such a way that they do not reflect costs.
According to the European Commission, the introduction of regulated tariffs by Member States should nonetheless remain optional.
Options to be rejected
In addition to this package of three measures, the document includes a series of options that the Commission does not support.
These relate to: - total suspension of the EU electricity market; - absolute capping of the wholesale price of electricity; - extension of the measure currently applied in the Iberian Peninsula (see EUROPE 12968/4) to the whole EU; - introduction of the measure in place in Greece throughout the EU; - temporary neutralisation of the effects of the EU Emissions Trading System (ETS) on wholesale electricity prices by subsidising the proportion of the cost of electricity production that is derived from the ETS; - obligation to introduce regulated retail prices for certain categories of consumers.
The Commission’s non-paper will feed into discussions taking place between Member States on Friday. 9 September at an extraordinary meeting of energy ministers (see EUROPE 13009/6).
In addition to emergency measures, the institution also intends to put forward a legislative proposal to reform the EU electricity market in early 2023.
See the document: https://aeur.eu/f/2wg (Original version in French by Damien Genicot)