As the European Commission is expected to unveil emergency measures to tackle rising energy prices on Wednesday 14 September during Ursula Von der Leyen’s State of the Union speech, a draft document seen by EUROPE indicates that these measures are likely to take the form of a proposed Council of the European Union regulation to reduce electricity demand in a coordinated way across Member States, cap the revenues of some electricity producers and levy a solidarity contribution on fossil fuel super-profits.
While this document introduces some new features compared to the previous draft regulation (see EUROPE 13016/1), the main lines remain the same.
It thus retains the idea of proposing two targets for the reduction of electricity consumption: a general indicative target and a mandatory target for peak consumption (peak hours).
According to the first, Member States should endeavour to implement measures to reduce their total monthly gross electricity consumption by a certain percentage compared to the average gross electricity consumption in the corresponding months of the reference period. As a sign that this target percentage has yet to be defined, the text replaces the “10%” that appeared in the previous draft with a cross.
The reference period is defined as “the period from 1 November to 31 March in the five consecutive years preceding the date of entry into force of this Regulation, starting with the period from 1 November 2017 to 31 March 2018”.
This first target concerns the electricity consumption of all consumers, including those who are not yet equipped with smart metering systems or devices that allow them to adjust their consumption during the day.
The Commission also wants to specifically target the hours of consumption when electricity is most expensive, when gas sets the marginal price.
Under the ‘merit order’ system on which the EU electricity market operates, the wholesale price of electricity is aligned with the marginal cost of the last generation unit mobilised to meet demand (the one with the highest marginal cost), which is usually a gas-fired plant in case of high demand.
The Commission thus proposes a “a mandatory target of at least a [xxx]% reduction in gross electricity consumption during selected peak price hours covering at least [xxx]% of the hours of each month where prices are expected to be the highest”. Again, the 5% target figure in the previous draft is replaced by a cross.
According to the document this binding target would lead to the selection of an average of 3 to 4 hours per working day corresponding to peak hours, but could also include hours when marginal power plant generation is needed to cover demand due to low renewable electricity production.
This time the target would be specifically consumers who can offer flexibility through demand reduction or demand shifting offers on an hourly basis.
Capping the income of infra-marginal producers
As expected, the proposed regulation will also introduce an EU-wide cap on the revenues of infra-marginal electricity generators, i.e. technologies that produce at a cost below the wholesale market price, in order to allow Member States to capture the difference between this cap and the revenues of these generators and then redistribute this difference to final consumers (households and businesses).
While the previous draft provided for a cap of €200/MWh, the new document now shows a cross instead.
It also states that the cap should be limited to revenues from the market in order to “to avoid targeting producers who do not actually benefit from the current high electricity prices due to having hedged their revenues against fluctuations in the wholesale electricity market at a price below the cap level”.
The sources of electricity concerned would be: wind power, solar power (solar thermal and solar photovoltaic), geothermal power, hydroelectricity without water retention, solid or gaseous biomass fuels (excluding biomethane), waste, nuclear power, lignite, oil shale, crude oil and other petroleum products.
Producers whose incomes are already capped through national measures would be excluded from this instrument.
In addition, Member States would have the possibility not to apply this cap to electricity generation installations with a capacity of less than 20 kW in order to “avoid an excessive administrative burden and ensuring an efficient application of the proposed measure”.
They could also conclude agreements to share excess revenues, in situations where a Member State’s net electricity imports are equal to or greater than a certain percentage not defined at this stage.
Contribution of fossil fuels
According to the Commission’s draft document, the proposed EU Council regulation will also introduce “a temporary solidarity contribution” which will apply to excess profits generated by companies in the oil, gas, coal and refining sector in the 2022 tax year.
This would be an “exceptional and temporary” measure allowing “a redistribution of resource and financial support to households and companies to mitigate the effects of sustained high energy prices”.
Regulated price
Alongside these three measures, the Commission plans to allow Member States to extend the practice of regulated prices to SMEs during this crisis.
“Such a possibility should maintain the incentive to reduce consumption and thus be limited to 80% of their historical consumption”, the document says.
It should be noted that the document does not mention the idea of a cap on gas prices. On Friday, the member states’ energy ministers had invited the Commission to “propose emergency and temporary interventions, including the capping of gas prices” while stressing that “further work is needed for the possible introduction of such a measure” (see EUROPE 13018/1). (Original version in French by Damien Genicot)