Energy crisis: What does the Commission’s plan for a ceiling on the price of electricity mean

The reality that is taking shape with the energy crisis, combined with the inflation that is running, has put “fire” on governments and the Commission in order to find a way to get out of the winter. The “voices” calling for immediate measures to deal with energy precision have increased dramatically recently, forcing the Czech EU presidency. to announce an emergency meeting of energy ministers on September 9.

The launch of a European “response” was also deemed necessary due to the Kremlin’s energy games, as the continuous reductions in natural gas deliveries due to “maintenance works” and the various supply interruptions drive the prices of natural gas and electricity from record to record. .

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According to a document published by Reuters, the Commission is moving towards a plan to impose a ceiling on certain electricity producers that do not operate on natural gas. The report came a few hours after a Commission official announced that Ursula von der Leyen would outline the plan to introduce a ceiling on energy prices on September 14. “Ms von der Leyen, our president, will outline this in more detail on September 14,” Mechtild Versdorfer, deputy director-general of the Commission’s energy division, told a meeting of the European Parliament’s energy committee.

It is recalled that the extraordinary meeting of the EU Energy Ministers will take place on September 9. There, proposals – such as a ceiling on the price of natural gas – or interventions to prevent market malfunctions will be considered.

Russia reacts

Russia’s reaction was immediate, announcing that it would suspend supplies of oil and oil products to states that decide to limit the price of oil.

Russia’s Deputy Prime Minister Alexander Novak said such a thing would be paranoid. “This is a move that is an intervention in the market mechanisms of such an important industry as the oil industry, which is the most important in terms of ensuring the energy security of the whole world, such efforts will only destabilize the oil industry, the oil market “, he said. noting that European and American consumers already paying high prices for energy now will pay for the measure initially.

“This will completely destroy the market,” the Russian deputy prime minister said.

The exceptions to the ceiling

According to the market model provided by European legislation, the exchange price is formed based on the price offered by the most expensive unit required every hour to cover the electricity demand. In practice the price is determined by the natural gas units which – due to the jump in the international price of the fuel – are the most expensive. All units (lignite, hydroelectric, RES, etc.) are compensated with the price set by the most expensive unit.

The document, seen by Reuters, says the price cap would help raise revenue that governments could use to lower energy bills for consumers and should be implemented alongside curbing electricity demand across the country. the EU.

The target

The aim of the intervention is to decouple the commercial returns of the power generation in question from the current price of electricity, which has skyrocketed due to the spike in natural gas prices.

National governments “will be obliged to share the revenue generated with electricity consumers in order to reduce their electricity bills,” the document states.

However, this system would not be compatible with existing policies in place in some countries to tax the exorbitant profits of some energy companies, and these policies should be scrapped, the Reuters document said.

Energy saving

EU proposals should also include measures to curb electricity demand, the paper said, as well as measures to protect consumers from inflated bills.

EU countries have agreed to limit the use of natural gas this winter, but while some governments have implemented national measures to save electricity, EU countries have yet to join forces to do so.

The measures taken by European countries

In Germany, Chancellor Olaf Scholz presented the third relief package to deal with the energy crisis:

  • One-off benefit for low incomes between 800 and 1500 euros
  • Housing and heating allowance
  • Additional aid for low-income pensioners
  • Loans with favorable terms for small and medium enterprises

Italy: Economy and Coal

So far the measures taken by the government are:

  • Reduction of heating in homes and offices
  • Reducing the lighting of public spaces and shops at night
  • Extending the life of coal plants to reduce natural gas

Spain: VAT on natural gas reduced to 5%

The Spanish government will reduce from October the VAT on natural gas to 5% from the current 21%.

  • VAT reduction from 21 to 5% from October
  • Free transport cards to save gas
  • Ceiling on the price of electricity

Spain, together with Portugal, has applied the electricity price ceiling since the beginning of the summer, obtaining an exemption from the EU.

Madrid believes that the measure works and will support it within the EU.

The intervention of Mitsotakis

It is recalled that Prime Minister Kyriakos Mitsotakis already pointed out in a letter to the President of the European Commission Ursula von der Leyen on March 9 the need for immediate and decisive intervention in the natural gas market “to prevent it from bringing additional costs to the lives of the citizens of the European Union , in the economies of the member states and in the successful implementation of the European Green Agreement”.

“If we don’t act now, the problem will continue in electricity prices – linked to natural gas prices in wholesale markets – in the coming spring and summer months, putting a huge burden on households and businesses,” he stressed. March the prime minister.

The possibility of imposing a ceiling on the price of natural gas was included in the conclusions of the European Council of March 25, but in practice the European reaction is now expected with a delay of several months. The first step is expected next Friday, September 9 at the meeting of the Council of EU Energy Ministers.

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