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

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

The European Commission has proposed a radical plan to ease high energy prices to comfort consumers and businesses and prepare for next winter.

Electricity storage imposed during peak periods, a cap on electricity prices, another on Russian gas and the recovery of excess profits from electricity and oil companies… all measures unveiled on Wednesday by Ursula Von der Leyen, the President of the European Commission (EC), where European energy ministers will work on Friday in an extraordinary council.

“We need to act as soon as possible,” he said, while others believed the Commission was too slow in making its decisions. Ambitious and complex, the plan already promises to be a headache for its implementation, from a technical and legal point of view.

“Times Are Hard”

The urgency is high because energy prices are rising around the world and Russia has partially or completely cut off gas to thirteen Member States of the European Union.

While the Brussels executive has now clearly emphasized its intention to cap the price of Russian gas to reduce Russian revenues, Vladimir Putin has already warned that his country will no longer deliver oil and gas to countries taking such action.

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

But the main measure that focuses all attention is the one that is 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 number that the President of the EC did not comment on and which was taken from the version of the text of the European Commission communicated to journalists… The latter does not include a ceiling on other gases such as liquefied natural: “the project is in table”, he said.

The Commission also recommends “smart energy savings” which means 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 proposes the “introduction of auctions where specific categories of consumers (for example, industrial consumers) submit bids on the amount of financial compensation they need to reduce their consumption”. Clearly, the state buys the commitments of companies to consume less during peak hours. The greater the savings, the higher the financial compensation.

Russian gas ceiling

The financing of this measure will be ensured by draining energy super profits. Thus, companies that produce low-cost energy that make exponential profits will be asked to distribute this “rent” to vulnerable consumers, to companies.

The same goes for fossil fuel companies. The EC is promoting a “solidarity contribution” from these oil and gas companies. Is it a contribution to the exploitation and production of gas and oil in the Union territory or a wider tax on oil companies based in the Union? The Council of Ministers on Friday should clarify its intentions.

Energy suppliers struggling to cope with rising prices should be offered “liquid support” by Member States, the Commission further proposed, promising to allow the rapid provision of public guarantees. “Times are hard and they will last,” warned Ursula von der Leyen. The ball is now in the court of the Member States.

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