EU energy ministers reached a political agreement on a regulation on an emergency intervention to address high electricity prices. The regulation will be formally adopted by written procedure in the coming days.
The European commission (EC) decides to intervene because gas and electricity prices reached record levels in 2021 and again hit all-time highs in 2022. The proposal of EC is based on Article 122 of the Treaty on the Functioning of the European Union and as such requires a majority vote in the European Council to be approved.
The regulation focuses on three key measures:
- A voluntary target for Member States to reduce overall electricity demand by at least 10%. Obligation toreduce electricity consumption by at least 5% during selected peak price hours. Member States will be required to identify the 10% (3 to 4 hours per weekday) of hours with the highest expected price and reduce demand during those peak hours. The peak consumption reduction measure shall apply for the period 1 December 2022 to 31 March 2023.
- Temporary, but mandatory EU-wide revenue cap of 180 €/MWh on inframarginal electricity producers, namely technologies with lower costs, such as renewables, nuclear and lignite. Any revenue above this level will be collected by the Member State governments and redirected to energy consumers to alleviate the impact of high energy prices. The market revenue cap would cover all market timeframes, regardless where the trading takes place – bilaterally (over-the-counter) or in centralised marketplaces. This measures shall apply from 1 December 2022 to 30 June 2023
- The Commission proposes a temporary mandatory solidarity contribution on surplus profits generated from activities in the fossil fuel sectors in 2022. Meaning member states will collect the extra profits of the oil, coal and gas companies. Any profits exceeding 20% increase compared to the average of the previous three years will be collected by member states, at a rate of at least 33%.
The widely discussed gas price cap measure is not part of the Regulation.
Member States are free to choose the measures to achieve the demand reduction. In particular, they should consider economically efficient and market-based measures such as auctions or tender schemes for demand side response or electricity not consumed.
Member States will be able to collect an estimate of up to €117 billion on an annual basis from the revenue cap measure on inframarginal electricity producers. By collecting excess profits of fossil fuel companies (coal, oil and gas) is expected member states to generate around €25 billion.
The funds collected from energy producers as well as from fossil fuel companies should be redirected to customers for reducing their energy bills or to suppliers who deliver electricity to customers below costs in case the member state has put a cap on electricity or gas price, or to promote investments in renewable energy and energy efficiency or to support energy intensive industries and cross-border projects.
The Regulation is binding in its entirety and directly applicable in the Member States in accordance with the Treaties.
The full text of the regulation can be found at: https://www.consilium.europa.eu/media/59318/st12999-en22.pdf
