On Friday, European Union energy ministers will try to agree on a series of emergency measures to stem the rise in gas and electricity prices following Russia’s invasion of Ukraine.

Under great pressure, the European Commission has presented to its 27 member states an arsenal of mechanisms, some of them extremely complex, in the hope of producing a text next week that will ensure enough consensus for immediate adoption.

While the idea of ​​taxing the windfall profits of nuclear and renewable energy companies and redistributing the resulting income has been well received, EU member states remain divided over whether to cap the price of Russian natural gas.

At the heart of the dialogue are the dysfunctions of the European electricity market, where the wholesale price is pegged to the price of the last power plant to meet demand, often a gas-fired power plant.

Redistribution of “surplus profits”

The Commission is proposing a revenue cap for companies operating in the nuclear power and renewable energy (wind, solar, biomass, hydro) industries that sell at a price far in excess of their production costs.

Governments can deduct the difference between the ceiling (a level of 200 euros per megawatt-hour is being discussed) and the market price and redistribute the “surplus profits” to vulnerable households and businesses.

“The idea has received huge support from states,” but “the devil is in the details, the ceiling must be determined,” said a European diplomat. Berlin and Paris proposed this mechanism.

At the same time, the European Commission wants to create a “temporary solidarity levy” for producers and distributors of gas, coal and oil, who are benefiting from the global rise in prices.

A “taboo-free discussion” is needed about “energy groups that make incredible profits in wartime,” Austrian minister Leonora Gewesler said Thursday.

“Unconstructive”

Following the July 27 agreement to limit EU gas consumption, the Commission also proposes setting “mandatory targets” to reduce electricity demand, with a fall for each Member State of “at least 10% of net monthly consumption” and “at least 5%” during peak hours.

And this offer was well received. The European diplomat also noted a “great convergence of views” in support of energy providers facing a lack of liquidity amid market volatility: European rules should be relaxed to quickly allow them to offer government guarantees.

On the contrary, many countries have reacted coldly to the idea of ​​capping the price of Russian gas imported by the European Union, which the European Commission has proposed to further limit the Kremlin’s revenues.

The potential impact of this measure on the market is causing skepticism in some European capitals, since Russian gas now accounts for only 9% of European imports (compared to 40% before the war). And some countries that remain heavily dependent on Moscow for energy fear catastrophic economic consequences.

On Wednesday, Russian President Vladimir Putin called it a “completely stupid decision” and threatened to cut off all gas supplies to any country that would accept such a mechanism.

“This proposal is not constructive. This is another form of sanctions against Moscow, and not a real solution to the energy crisis,” said Czech Energy Minister Josef Schikela, whose country currently chairs the European Council.

Hungary, for its part, says it “doesn’t understand” the measure, raising the risk of “creating a deficit”.

For its part, Italy provides for a total price cap for six months on gas purchased by the EU, regardless of its origin, including liquefied natural gas (LNG) transported by ships. Belgium and Greece agree with this idea.

“In order to fight the root evil, we need a ceiling on prices for the entire gas market,” and not just for the volume of gas imported from Russia, said Belgian Prime Minister Alexandre De Cros.

The Commission calls for “exploring ways” to lower the cost of LNG imports to “avoid much higher prices” than in Asia, but warns that the EU must remain sufficiently “attractive” to suppliers as global market supply is tight and LNG carriers can easily find other destinations.

Source: RES-IPE