Electricity

Here is how EU intends to curb impact of electricity, gas price spike

EU measures curb electricity gas prices

Photo: Jure Makovec / EC - Audiovisual Service

Published

October 7, 2021

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Published:

October 7, 2021

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Gas prices should gradually decrease from spring, but reserves in the EU are adequate for the winter, European Commissioner for Energy Kadri Simson said and added she would propose reforms for the market by the end of the year. The European Commission is considering to recommend using EU ETS revenue to shield poor households from the jump in power prices to records and cutting energy taxes. It may establish a system for joint purchases of gas and try to reduce the dependence of electricity prices on gas.

Gas underground storage is above 75% of capacity in the European Union, which is under the ten-year average, but still adequate to cover the winter season needs, European Commissioner for Energy Kadri Simson told the European Parliament. “This price shock cannot be underestimated. It is hurting our citizens and, in particular, the most vulnerable households, weakening competitiveness and adding to inflationary pressure. If left unchecked, it risks compromising Europe’s recovery,” she said.

Simson claimed the surge in energy prices “has little to do” with the EU’s climate policies and pointed to its dependence on imported fossil fuels. The European Commission is due to present immediate and medium-term solutions next week to ease the pressure from the jump in prices of electricity and gas.

EU isn’t immune to global developments in electricity market

“Some are pointing at the European electricity market design as a part of the problem. Yet, when demand and prices are high everywhere in the world, it is impossible for the EU to be immune. The best response to the price challenge is to progress faster towards our target goal of 65% of renewable electricity by 2030,” Simson underscored. She hinted at direct payments to those most at risk of energy poverty and cutting energy taxes.

The European Commission may recommend to member states to assist poor households with funds from the EU ETS

Funds to assist vulnerable households can be drawn from the “higher-than-expected” revenues from the Emissions Trading System (EU ETS), according to the energy commissioner. Simson said member states are estimated to have received EUR 10.8 billion more through the mechanism in the first nine months of the year than in the same period of 2020.

Nevertheless, in her words, gas prices will remain high throughout the winter but they should gradually decrease from spring next year, based on current demand forecast. Simson said the evolution of the winter season is a key variable.

Renewables aren’t exposed to price volatility

“Wind and solar have continued to generate the cheapest electricity in Europe in recent months. They are not exposed to price volatility… We need to ensure that markets work in a fair and transparent way” with market surveillance and prevention of uncompetitive practices, Simson pointed out.

The European Commission is looking at the possibility to set up a mechanism for joint purchases of emergency gas reserves

The European energy commissioner also said she would propose a reform of the gas market by the end of the year and “review in that context issues around storage and security of supply.” Simson said the EU is analyzing ideas from member states like the one for joint purchases of emergency gas reserves on a voluntary basis.

“I know that some of you are concerned about possible manipulation of the EU energy market and these are serious concerns,” she said. Among the factors that led gas prices to records, she highlighted the resumption of economic activity and “the unusually cold spring this year.”

Von der Leyen: EU should break link between gas, power prices as renewables are much cheaper

European Commission President Ursula von der Leyen announced a review of the composition of the power prices. “If electricity prices are high, it is because of the high gas prices, and we have to look at the possibility to decouple within the market because we have much cheaper energy like renewables,” she said.

Executive Vice President of the European Commission for the European Green Deal and European Commissioner for Climate Action Frans Timmermans asserted that the jump in prices of greenhouse gas emissions within the EU ETS accounts for a “very small” part of the power price spike. He brushed away the calls for an EU intervention in the CO2 market.

Russian President Vladimir Putin blamed the gas price spike on market speculation and vowed to boost deliveries to Europe.

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