Energy Crisis

EU to cap revenue for electricity producers at EUR 180 per MWh

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Photo: Dati Bendo / EC - Audiovisual Service

Published

September 14, 2022

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Published:

September 14, 2022

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European Commission President Ursula von der Leyen presented measures to bring down prices of electricity, including an initiative to decouple the dominant influence of gas in the sector. Under the proposal, the revenue for so-called inframarginal producers, ones that operate power plants that have lower costs, would be capped at EUR 180 per MWh.

As European Union member states have failed to agree on electricity market reform and temporary mechanisms to protect vulnerable groups from a spike in gas and power prices, the European Commission responded with its own set of proposed measures. The key part of the plan is to limit the revenue for companies that produce electricity from renewable sources, nuclear fuel and lignite.

Von der Leyen: Major oil, gas and coal companies also have to pay a fair share

“Reducing demand during peak hours will make supply last longer, and it will bring prices down… But we know this will not be enough. This is why we are proposing a cap on the revenues of companies that produce electricity at a low cost,” European Commission President Ursula von der Leyen said in her State of the Union address in the European Parliament.

She added that major oil, gas and coal companies have to pay a fair share as they are also “making huge profits.” Von der Leyen reiterated the EU’s support for Ukraine against the Russian invasion.

Revenues above cap to be used to help energy consumers

The proposal for an emergency intervention in the energy markets is intended to tackle recent dramatic price rises, the European Commission said and attributed the distortion to “the continued weaponization by Russia of its energy resources.”

The EU’s executive arm said a temporary revenue cap should be imposed on inframarginal electricity producers, namely the technologies with lower costs such as renewables, nuclear and lignite. The limit is envisaged at EUR 180 per MWh. Revenues above the cap would be collected by member state governments and used to help energy consumers reduce their bills.

The EU expects member countries would raise over EUR 140 billion with the proposed measure

“Our proposal will raise more than EUR 140 billion for member states to cushion the blow directly,” Von der Leyen said. The EU must decouple the dominant influence of gas on the price of electricity, she pointed out.

As for the prices of gas, the commission’s head stressed work is underway to establish “a more representative benchmark” than the TTF, as it “has not adapted.”

Option for regulated electricity prices at below-cost levels

In order to reduce demand, the commission proposed an obligation to reduce electricity consumption by at least 5% during selected peak price hours. It added that member countries should reduce overall electricity demand by at least 10% until March 31 with measures that may include financial compensation.

The plan is also to temporarily skim excess profits generated from activities in the oil, gas, coal and refinery sectors which are not covered by the inframarginal revenue cap. The contribution would be collected by member states on 2022 profits that are above a 20% increase on the average profits of the previous three years. The revenues would be redirected to vulnerable households, hard-hit companies and energy-intensive industries.

Proceedings from excessive revenues will also be at member states’ disposal for green cross-border projects, the European Commission revealed

Member states will be able to use the proceedings to finance cross-border projects in line with the REPowerEU objectives or use part of the revenues for the common financing of measures protecting employment or promoting investments in renewables and energy efficiency, according to the announcement.

The proposals include below-cost regulated electricity prices for the first time, and the expansion of regulated prices to cover small and medium-sized enterprises.

Furthermore, Von der Leyen said the EU should create a hydrogen bank to help guarantee the purchase of hydrogen, notably by using resources from the Innovation Fund. It will be able to invest EUR 3 billion, she added but didn’t refer specifically to green hydrogen.

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