The EU is preparing to step into its energy market, intervening in the short term to dampen soaring power costs as the continent braces for the economic hit of energy shortages this winter.
The bloc wants to limit prices in the short term and then in the longer term sever the link between gas and electricity costs, European Commission President Ursula von der Leyen said.
While she did not give details, the direction of travel underscores the sense of panic in European capitals.
Photo: EPA-EFE
“We will have to develop an instrument, that will happen in the next days and weeks, which ensures that the gas price will no longer dominate the electricity price,” she said on Monday evening during an appearance in Berlin with German Minister for Economic Affairs and Climate Action Robert Habeck.
The unprecedented spike in power prices, which have soared almost 10-fold in the past year, has fueled inflation and dramatically increased the economic burden on businesses and households recovering from the COVID-19 pandemic. Politicians are now contemplating the prospect of Moscow turning off the gas and forcing European industry to shut down, as a way of weakening the continent’s support for Ukraine.
European policymakers are stepping up the pace as they prepare for winter. They are already racing to fill up gas storage and those efforts are starting to bear fruit. Gas reserves in the EU were 79.4 percent full as of Saturday, approaching already the target of 80 percent by Nov. 1.
Von der Leyen did not set out details, but more and more member states are calling for a price cap. The Czech Republic, which holds the rotating presidency of the EU, is to convene an extraordinary meeting of energy ministers on Friday next week.
EU diplomats said the commission could offer a detailed plan as soon as this week.
A draft internal EU document seen by Bloomberg News earlier this year showed the commission considered an option of capping gas prices to avoid “unbearably high” costs if Russia significantly limits or cuts off the flow. Introducing a maximum regulated price in an emergency would be limited to its duration and the market price should be used as long as possible.
One possibility would be to cap the price on European gas exchanges, but the document showed such a mechanism could be introduced in different ways at various levels of the gas value chain.
With Russia squeezing gas deliveries and power-plant outages further sapping supply, pressure is growing on EU leaders to act quickly or risk social unrest and political upheaval.
“Skyrocketing electricity prices are now exposing, for different reasons, the limitations of our current electricity market design,” Von der Leyen said earlier on Monday at the Bled Strategic Summit in Slovenia.
“It was developed under completely different circumstances and completely different purposes,” she added.
In the short term, Habeck suggested considering a short-term tax on excess profits by energy companies as part of the transition.
“The companies would still earn this money, but then it would be taken from them and be used to preserve the social cohesion and also to finance any aid for the companies, as long as we have developed and implemented the new market design,” he said.
European natural gas prices on Monday plunged the most since March after Germany said its gas stores are filling up faster than planned. Benchmark Dutch front-month futures fell as much as 21 percent, partly reversing last week’s jump of almost 40 percent.
Czech Prime Minister Petr Fiala is seeking backing for his price-cap plan and discussed it with German Chancellor Olaf Scholz at bilateral talks in Prague on Monday.
Scholz told reporters at a joint news conference that he was grateful for the Czech proposal for a price cap and expressed confidence that the EU would reach an agreement quickly.
“We will look very carefully at what instruments we have that we can use to bring down electricity prices,” Scholz said. “It’s not something that can happen at random, it has to work in a technical sense, but obviously what is being set now as the market price is not a real reflection of supply and demand.”
The Czech presidency will seek to broker a solution before the energy ministers’ meeting in Brussels on Friday next week, Fiala said.
“In general, I can perhaps say that, for example, decoupling electricity prices from the cost of gas is one of the paths we can consider,” he told reporters.
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