By Kate Abnett
BRUSSELS (Reuters) – The European Union will unveil a package of measures on Wednesday aimed at pulling down surging gas and power prices that are stoking record-high inflation, hampering industrial activity and inflicting sky-high bills upon citizens ahead of winter.
At the start of this month, Russia said it would not reopen its main Nord Stream 1 pipeline to supply Europe – the latest in a string of supply cuts, which Moscow blames on Western sanctions imposed over its invasion of Ukraine.
European Commission President Ursula von der Leyen outlined the measures in a speech on Wednesday morning, before the full proposals are due to be published later. Governments will then thrash out the details, possibly approving them at a Sept. 30 meeting of energy ministers.
Here’s what the EU’s energy crisis package contains.
WINDFALL LEVY ON NON-GAS POWER PLANTS
Von der Leyen said Brussels will propose measures to claw back revenue from electricity generators with low running costs, to raise cash for governments to spend on cushioning consumers and industry from soaring energy bills.
In the EU system, gas plants often set the price of electricity. Non-gas fuelled power plants sell their electricity at the resulting high prices – even though they do not have to pay huge bills for gas.
Brussels wants to skim off any excess revenue that wind, solar, nuclear and biomass plants make under this system, according to a draft of the Commission’s upcoming proposal, seen by Reuters, which could change before it is published.
The measure would apply a price limit per megawatt hour on the revenue these generators get for their power in the market. The revenue cap would be applied after power transactions are settled, so it would not directly affect prices in Europe’s exchange-traded electricity market, the draft said. It would exclude revenues made from government subsidy schemes.
Coal plants would not be covered because their fuel costs have also increased sharply this year, the draft said.
The draft included a 180 euro/MWh revenue limit – lower than the 200eur/MWh included in a previous draft.
That would cap generators’ revenues at less than half of current market prices. Germany’s front-year electricity price hit a record high of more than 1000 euros/MWh last month and is currently trading at close to 500 euros/MWh.
Industry groups say most of Europe’s wind farms are not reaping windfall profits from high energy prices because they sell their power under fixed-price contracts, many of them government support schemes – raising questions about how much money the EU measure would raise.
PROFIT SHARING FOR FOSSIL FUEL FIRMS
The EU also wants companies that have made bumper profits from selling fossil fuels at record prices to make a financial contribution to help citizens and industries grappling with sky-high bills.
EU countries would introduce a temporary windfall profit levy for oil, gas, coal and refining companies established in the EU. It would apply to 33% of these firms’ “taxable surplus profits made in the fiscal year 2022”, according to the draft.
Countries including Italy have already introduced a windfall profit tax on energy firms. The draft said Brussels would put in place a minimum rate for all EU countries, but governments could choose to go higher.
ELECTRICITY DEMAND CUT
The draft EU proposal would impose a mandatory target for countries to cut electricity consumption this winter, to ensure Europe has enough fuel to last the colder months.
EU gas storage is now 84% full, exceeding the EU’s pre-winter filling target. But analysts say Europe will still need to slash gas use over winter, to avoid storage facilities running dry. EU countries have already agreed to curb their gas demand this winter – and electricity use could be next.
EU countries would be required to curb their power use by 5% during the 10% of hours with the highest electricity demand each month, the draft said – a move it said could curb gas use in the power sector by around 4% over a four-month period.
EMERGENCY LIQUIDITY FOR POWER FIRMS
Von der Leyen said the European Commission would work on plans to help energy companies facing soaring collateral needs. Those measures are due to be unveiled later than Wednesday.
Utilities sell some power in advance to secure a certain price but must post a cash deposit with exchanges in case they default before the power is produced. Soaring power prices have meant firms must post bigger margin deposits, leaving some struggling to find the extra cash.
“We will work with the market regulators to ease these problems by amending the rules on collaterals and by taking measures to limit the intra-day price volatility,” von der Leyen said.
NO GAS PRICE CAP
The draft EU proposal did not include a gas price cap – an idea that has divided the bloc’s member states, and which von der Leyen said the Commission was still discussing.
EU countries have asked Brussels to propose a cap but disagree on whether this should apply to all imported gas, pipeline flows or wholesale gas trading.
Germany, the Netherlands and Denmark oppose a general gas price cap, warning that it could leave countries struggling to attract supplies in price-competitive global markets, and endanger Europe’s winter energy security.
Italy and Poland are among the supporters that say capping gas prices would pull down bills for citizens and industries.
The EU has also backed away from an earlier plan to impose a price cap on Russian gas. Countries including Hungary and Austria had opposed that idea in case Moscow retaliated by cutting off the dwindling supplies it still sends to the EU.
(Reporting by Kate Abnett, Jan Lopatka; additional reporting by Susanna Twidale, Editing by Ed Osmond and Louise Heavens)
