By Frédéric Simon, Kira Taylor and Valentina Romano | EURACTIV.com
28-09-2022 (updated: 29-09-2022 )
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With winter looming, growing public unrest and a seemingly never-ending energy crisis, EU capitals are facing increasing pressure to shield consumers and many are looking to energy price caps as a solution.
Calls for price caps have become like “whack-a-mole”, one EU diplomat quipped ahead of an emergency meeting of energy ministers to discuss skyrocketing energy bills on Friday (30 September).
Since the beginning of the crisis, price caps have popped up in various different guises and many countries have rolled them out nationally.
Earlier this year, Spain and Portugal launched a cap on wholesale gas prices. The idea then spread across Europe , including to Greece, France, Malta, Estonia, Romania and Slovenia, all of which have implemented energy price caps in some form.
Poland and the Netherlands have also announced that they plan to cap electricity prices in 2023 and Germany is considering introducing a cap.
This has triggered calls for an EU-wide harmonisation of sorts, with countries like Belgium, Italy and Spain reiterating calls for an EU-wide cap on gas prices this week .
But depending on the measure and how long it is in place, price caps could also backfire.
While EU governments are rightly concerned about the need to protect vulnerable consumers this winter, price caps risk masking the real issue – that Europe lacks enough gas to meet demand in the first place.
“If you lower prices for energy, you reduce the incentive for energy savings,” says Bram Claeys, a power market expert from the Regulatory Assistance Project (RAP). “In order to prevent rationing or even blackouts, governments then need to double down on active demand reduction curtailment. Otherwise, people will just consume more than we actually have energy to meet,” he told EURACTIV.
But he warned that “if price caps relax that pressure but don’t take away the actual causes of the crisis, then you’re not solving anything”. Taking France as an example, he said the price cap implemented there is exceptionally costly and protects consumers who may not need it.
Daniel Gros, a German economist at the European Policy Centre (EPC) in Brussels, goes further. According to him, price caps or subsidies to lower consumer bills are both “costly and futile” because they fail to address the root cause of the problem.
“One critical side effect of state price subsidies is that gas demand will fall less than expected. Consumers gifted cheaper gas by their governments will be less inclined to turn down their thermostats or take shorter hot showers,” Gros warned in an op-ed for EURACTIV .
Price caps also entail huge bills for governments which have to foot the bill and make up the difference between the price paid by consumers and the wholesale price on the market. Price caps on gas could also threaten Europe’s security of supply by lowering the competitiveness of bids on tight international markets.
Very aware of this, the European Commission veered away from proposing price caps and, instead, suggested a revenue cap for cheap electricity production and a levy on extraordinary profits made by fossil energy companies. This would enable EU countries to use revenues to shield vulnerable consumers through national-level support schemes.
Think tanks like RAP also suggested some measures to tackle the crisis, including a shock absorber that would lower prices without disrupting the functioning of the electricity market.
Energy ministers will discuss the Commission proposal at their meeting on Friday and some are still pushing the Commission to introduce an EU-wide cap on gas prices .
15 EU countries have written a joint letter asking the European Commission to introduce a price cap “applied to all wholesale natural gas transactions, and not limited to import from specific jurisdictions” like Russia. It is signed by the energy ministers of Belgium, Bulgaria, Croatia, France, Greece, Italy, Latvia, Lithuania, Malta, Poland, Portugal, Romania, Slovakia, Slovenia, and Spain.
But other countries view price caps as a mole that needs to be batted down with a hammer, fearing the impact of such a measure on security of supply.
Unlike electricity, liquified natural gas (LNG) is a global commodity that can be shipped anywhere in the world and will therefore always go to the highest bidder.
Pipeline gas could be easier to cap as it is harder to switch to new buyers. But the Kremlin is no longer a valid interlocutor, leaving Norway and Algeria as the main remaining candidates for what could become an arm-wrestling match, according to Claeys.
EU countries are trying to come to an agreement on the proposals ahead of Friday’s Energy Council, with meetings at ambassador level planned on Wednesday and potentially Thursday to hash out their position. On Friday, we’ll see what progress has been made.
BRUSSELS. Citizens, non-profits to sue Belgian state over nuclear reactor closure. Two non-profit organisations and hundreds of citizens are suing the Belgian State, nuclear operator Engie, and transmission system operator Elia in the name of security of energy supply. Read more.
STOCKHOLM | COPENHAGEN. Swedish police take action over Nord Stream blasts. Following reports of explosions and the discovery of suspicious leaks in the Nord Stream 1 and 2 pipelines, the Swedish police filed a criminal complaint related to damage south of Bornholm, radio Ekot reported. Read more.
WARSAW. Baltic Pipe gas pipeline opens, connects Norway and Poland. Leaders of Poland, Denmark, and Norway officially launched the Baltic Pipe gas pipeline as a key step on the way for Poland and the whole of Europe to cut energy dependency on Russia. Read more.
LJUBLJANA. Slovenia ready to nationalise energy firms if necessary. The Slovenian government will nationalise energy firms if necessary to guarantee supplies as Prime Minister Robert Golob announced on Tuesday that €750 million has been set aside for this purpose in 2022’s revised budget. Read more .
WARSAW. Baltic Pipe gas pipeline opens, connects Norway and Poland. Leaders of Poland, Denmark, and Norway officially launched the Baltic Pipe gas pipeline as a key step on the way for Poland and the whole of Europe to cut energy dependency on Russia. Read more .
LISBON. Portugal to host dimly-lit Christmas. Portugal’s government will limit decorative lighting at Christmas, implement air conditioning controls, and suggest changes to teleworking arrangements to save energy. Read more .
STOCKHOLM | COPENHAGEN. Swedish police take action over Nord Stream blasts. Following reports of explosions and the discovery of suspicious leaks in the Nord Stream 1 and 2 pipelines, the Swedish police filed a criminal complaint related to damage south of Bornholm, radio Ekot reported. Read more .
DUBLIN. Cost of living, energy focus in new Irish budget. Measures designed to offset the cost-of-living and energy crisis are the focus of this year’s budget, unveiled by Dublin on Tuesday. Read more .
PARIS. France backs Brussels’ winter proposals, hopeful of Macron’s Europe project. France is fully behind Brussels’ proposals, including diversifying supply and possibly limiting energy prices, that should help the continent get through the winter unscathed, the Secretary of State for European Affairs Laurence Boone told EURACTIV France in an interview. Read more .
BRUSSELS. Citizens, non-profits to sue Belgian state over nuclear reactor closure. Two non-profit organisations and hundreds of citizens are suing the Belgian State, nuclear operator Engie, and transmission system operator Elia in the name of security of energy supply. Read more .
TIRANA. Energy body agrees to higher energy tariffs for big Albanian consumers. In line with the government’s announcement earlier this month, the Energy Regulatory Body has decided to increase the cost of electricity for households that use more than 800kilowatt hours (kWh) per month, a decision that could impact up to 72,000 homes. Read more .
LJUBLJANA. Slovenian government projects €5 billion for 2023 to combat the energy crisis. The government is planning measures worth nearly €5 billion to fight the energy crisis in 2023, Prime Minister Robert Golob announced in parliament on Monday. Read more .
SOFIA. Bulgaria is lagging in accumulation of gas reserves. Bulgaria will not achieve the EU’s minimum goal of filling up to 80% of its gas storage by the start of the heating season, which in the EU begins on 1 October, EURACTIV’s partner Dnevnik reported. Read more .
VIENNA. Vienna braces for darker winter to save energy. The Austrian capital is preparing to reduce energy consumption this winter, announcing an early light shut-off in low-traffic areas, leading to concerns over upcoming festive celebrations. Read more .
BERLIN. Scholz secures gas deal with Abu Dhabi amid pressure on human rights. Chancellor Olaf Scholz secured an agreement with Abu Dhabi on fresh, natural gas shipments during his two-day Gulf visit over the weekend, though the pressure to address human rights issues remains high. Read more .
BRATISLAVA. New laws open door for Slovak nationalisation of gas, and electricity. Further measures will enable the government to nationalise energy produced by companies and declare a state of emergency in case of shortages, unaffordable increases, or threatened security. Read more .
LISBON. Portuguese government still believes France can be convinced about gas link. The government believes it could still be possible to convince France to allow interconnections from the Iberian Peninsula to supply gas, and later hydrogen, to Europe but is also looking into an alternative connection through Italy. Read more .
LONDON. Fracking to return as UK seeks short-term alternatives on gas supply. Fracking for gas will be part of the UK’s short-term response to the energy crisis prompted by Russia’s invasion of Ukraine, ministers announced on Thursday. Read more .
BRUSSELS. First nuclear reactor to be shut down in Belgium. According to the Belgian law on nuclear phase-out, the Doel 3 nuclear reactor will stop operating on Friday after 40 years of activity. Read more .
VIENNA. Capping company earnings ‘does not make energy cheaper,’ Austrian FM. The EU’s plans to cap earnings of electricity producers would not make energy cheaper, Finance Minister Magnus Brunner explained, as the government is spearheading a new gas independence initiative. Read more .
PRAGUE. Czech MEP: EU-Azerbaijan gas deal was mistake. Pirate party MEP Markéta Gregorová is doubtful about the gas imports memorandum signed between the EU and Azerbaijan as, according to her, the EU should learn from its previous experience with Russia and not increase its dependence on dictatorships. Read more .
HELSINKI. Finland: Uniper’s nationalisation a ‘regrettable’ necessity, relief. The long-anticipated announcement that the German State will take full control of the Finnish energy company Fortum’s subsidiary Uniper was seen in Finland mostly as an unavoidable measure and a relief despite the heavy losses. Read more .
PARIS. France’s energy bill to exceed €100 billion this year. France’s fossil fuel import bill is expected double from 2021, reaching €100 billion as energy bills skyrocket across Europe, the French Nuclear Energy Society (SFEN) told a Parliamentary hearing on Wednesday. Read more .
Czechs float compromise on emergency measures for the energy sector. After a first version circulated last week , the Czech EU Presidency has floated a second and third compromise proposal on the EU’s emergency measures for the energy market.
Presented on 14 September by the European Commission, the emergency measures includes three flagship proposals:
The new compromise text floated by the Czech Presidency introduces further exemptions to the EU-wide revenue cap of €180/MWh. According to the Czech proposal, EU countries would be allowed to “set a specific cap” on revenues from hard coal, at a lower level than the EU limit.
However, in order to “prevent security of supply risks,” a higher revenue limit can be set for operators “when their investment and operating costs are higher than the Union-wide cap”. In addition, “supplier of last resort regimes, and the choice by member states of the supplier of last resort” would remain unaffected by the EU-wide cap, as a way of ensuring security of supply in case of emergency.
Regarding the solidarity contribution, all EU member states would be required to introduce one, “unless they have enacted equivalent national measures,” according to the compromise text, which lists detailed criteria for eligibility.
Cyprus and Malta are offered a quasi opt-out and will decide whether to apply parts of the regulation “on a voluntary basis”.
On electricity demand reduction, EU countries are offered more wiggle room, “as long as the energy saved during peak hours is at least equal” to the EU-wide goals. The 2nd compromise proposal by the Czech Presidency can be downloaded here . Third compromise proposal here . (Frédéric Simon | EURACTIV.com)
EU approves €5.2 billion in hydrogen subsidies. The European Commission last week (21 September) approved a €5.2 billion public subsidy programme for hydrogen, which is expected to unlock an additional €7 billion in private investments.
The project will support hydrogen technology to help decarbonise industrial processes such as steel, cement and glass. It was awarded the status of Important Project of Common European Interest (IPCEI), allowing participating governments to subsidise the programme with more public funding than would normally be tolerated under the EU’s state aid rules.
Called “IPCEI Hy2Use”, the projet was jointly prepared by 13 EU member states: Austria, Belgium, Denmark, Finland, France, Greece, Italy, Netherlands, Poland, Portugal, Slovakia, Spain and Sweden.
‘Hy2Use’ includes two complementary types of projects, said EU Commission vice-president Margrethe Vestager , in charge of competition policy: “some involve the construction of large-scale infrastructure for the production, storage and transport of renewable and low-carbon hydrogen, while others develop highly-innovative technologies leading to reduced greenhouse gas emissions in industries such as cement, steel and glass sectors that typically face higher barriers to decarbonise”.
The completion of the overall project is planned for 2036, with timelines varying in function of the project and the companies involved, the Commission said in a statement .
Green campaigners, for their part, were dubious and pointed to potential leakage of hydrogen from storage or transport infrastructure. “Although hydrogen emits no carbon dioxide when either burned or used in a fuel cell, it has an indirect, but powerful warming effect when leaked into the atmosphere,” said the US-based Environmental Defense Fund, which recently published new research on hydrogen’s warming impacts.
“While still better for the climate, even green hydrogen would fail to meet its climate-neutral promise if leaks are not managed,” EDF warned. (Frédéric Simon | EURACTIV.com)
Algeria to increase gas supplies to Italy. Algeria will increase gas deliveries to Italy this year to 25.2 billion cubic meters (bcm), up from 20.9 billion bcm in 2021, Sonatrach’s CEO Tewfik Hakkar told Bloomberg on Wednesday (21 September).
Gas exports have so far reached 17.8 bcm, a rise of 17%, Hakkar told the news agency. Hakkar’s remarks were aimed at ending rumours that Algeria is facing difficulties fulfilling its contract with Italy, a source familiar with the matter told Reuters.
The key message is “don’t worry Italy, Algeria will supply the agreed volumes,” said the source, who asked not to be named. Algeria produced 103 bcm of gas in 2021, exporting 54 bcm, according to Sonatrach’s figures. (EURACTIV.com with Reuters)
11 OCTOBER. Media partnership – Winter is coming: how to shield the most vulnerable and preserve the consensus on the war. A panel of experts will discuss policy options that meet the need for a principled foreign policy towards Russia, while upholding the EU’s commitment to equity and a just energy transition at home. Speakers will include the Director of the Directorate for Just Transition, Consumers, Energy Efficiency, and Innovation at the European Commission Directorate-General for Energy Paula Pinho and others. Programme and registration here . (Organised by Open Society Foundations in Media Partnership with EURACTIV).
12 OCTOBER. Reducing industrial fossil gas demand in Europe – what are the next steps? According to new data gathered by the research institute “Climact”, there is potential for reducing fossil gas consumption in many industrial processes, such as low and medium heat provision. Join this EURACTIV Virtual Conference to discuss how some industry sectors can move from fossil gas to electrification. Programme and registration here . (Organised with the support of the European Climate Foundation).
24 OCTOBER. District heating in the EU – What lies ahead? Join this EURACTIV Virtual Conference to discuss the future of district heating in the European Union, in light of the war in Ukraine. Programme and registration here . (Supported by PGE Polska Grupa Energetyczna).
25 OCTOBER. What is the future of the EU’s energy sector? Achieving climate neutrality is a great challenge for both the European Union as a whole and individual Member States. The European energy sector is at a crossroads. Join this EURACTIV Hybrid Conference to discuss its future. Programme and registration here . (Supported by the PKEE Polish Electricity Association).
27 OCTOBER. How to ramp up hydrogen production & speed up the steel industry’s transition, while navigating an unprecedented energy crisis? Join this EURACTIV Hybrid Conference to discuss how to ramp up hydrogen production and speed up the steel industry’s transition in the current context of an unprecedented energy crisis. Speakers include MEP Jens Geier, Rapporteur for the Hydrogen and Gas Directive, and more to be announced soon. Programme and registration here . (Supported by Eurofer).
7 DECEMBER. EU Energy Transition – what role for critical raw materials? The European Commission, together with relevant stakeholders, is working on different action plans and initiatives to address critical raw materials in supply chains. Join this EURACTIV Virtual Conference to discuss the role of critical raw materials in ensuring a fast and ambitious energy transition across Europe. Programme and registration here . (Supported by Nickel Institute).
[Edited by Frédéric Simon]
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