Eurelectric: unsuitable measures to tame electricity prices would hinder investments in renewables

Ill-designed emergency measures to limit the impact of high electricity prices would create further market distortions, and cripple investments in renewables and clean energy technologies, Eurelectric warns in its response to the European Commission’s options for immediate price mitigation measures.

Eurelectric has no doubt that the implementation of the EU Green Deal and decarbonization objectives is the only way to combine affordability, energy resilience, and security of supply. The European industry association for the electricity sector also sees the urgent need for more energy saving and emergency plans in case supplies of Russian gas are terminated.

At the end of March, the European Commission tabled ideas for addressing the root causes of the problem in the gas market and ensure security of supply at reasonable prices for next winter and beyond. The ideas are a follow-up of the REPowerEU plan.

The short-term options to tackle the high electricity price can be broadly grouped in two categories: interventionist options that include financial compensation and regulatory options without it. Eurelectric’s assessment lays out the advantages and disadvantages of all options, and also the association’s views.

Distortive wholesale market intervention could damage the investment climate

According to Eurelectric, the energy transition will not only make it possible to reduce the European reliance on external fossil fuel suppliers but also help make energy prices lower in the long run. Renewables and carbon-neutral sources are already the cheapest source of energy, and they enable the diversification of Europe’s energy mix, according to the association.

The current situation also draws attention to the urgent need for more energy efficiency and proper contingency plans in case of significant or total disruption of gas supply from Russia.

Urgent need for more energy efficiency and proper contingency plans

Eurelectric advises member states to take short-term emergency steps to moderate gas demand by implementing firm energy efficiency and saving measures, and to prepare their contingency plans for security of supply for both gas and electricity markets.

The association stresses electrification as the optimal solution to meet Europe’s decarbonization targets, but points out that throughout this process, guarding investors’ confidence is crucial.

Any distortive wholesale market intervention, like measures related to “windfall profits” or the introduction of price caps, risks jeopardizing trust in the EU’s integrated energy market, severely damaging the investment climate and raising a set of complex legal issues as well as political stakes, Eurelectric said.

Financial compensation is the best solution

Such measures would prevent the investments needed for the energy transition and could harm security of energy supply, so their impacts should be carefully evaluated.

Eurelectric proposes that any measure with or without financial compensation, should be complemented with additional measures to moderate energy demand in industry and households, such as reducing thermostats by 1 Celsius. Any price compensation could lower interest for energy savings, the association added.

Member states don’t understand how energy markets work

It also said that the interaction between wholesale market prices and consumer prices should be kept in mind. According to Eurelectric, any intervention on the wholesale spot market could lower the retail prices only for consumers directly exposed to wholesale prices.

The association claims that the developments in some member states demonstrate that their measures are based on misinterpretation of energy markets.

Eurelectric concludes that any intervention must be temporary and based on evaluation of pros and cons, and costs allocated equally across taxpayers. Option 1 – financial compensation – is clearly the most cost-effective, and less distortive solution, Eurelectric said.