Brussels offers to limit gas prices in Europe in an emergency

The European Commission will next week offer an emergency intervention on gas prices in the event of an emergency across the continent. The event is part of an arsenal preparing for a possible delay in the arrival of Russian gas to Brussels. The plan also includes “coordinated rationing and demand reduction,” according to a project that the executive agency of the public power expects to approve by the 18th, for an extensive expansion it had access to. The gas price cap will administratively determine the maximum price of fuel that is sent to businesses and consumers. The regulated fee, the document adds, will only be in effect in an emergency.

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From the outset, the Commission proposes to maintain the plans adopted in most Member States to mitigate the rise in energy prices for households and businesses. Brussels, which last year thought the recovery was temporary, now indicates it will last at least until 2025, with new proposals under the draft document.

The same document acknowledges that the measures taken so far only serve to raise prices, but will clearly be insufficient if a confrontation with Moscow over Russia’s invasion of Ukraine leads the Kremlin to close the oil pipelines that supply Europe.

“It may be necessary to consider a different set of measures in the event of a sudden and major outage or even a complete interruption of Russia’s gas supply, which would lead to unaffordable prices or insufficient gas supply,” the commission said in a statement. . demonstration. Market and long-term improvements in electricity market design.

unknown territory

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The text suggests that the EU is entering uncharted territory, and the most extreme proposals, unimaginable just three months ago, are in the motto, the headline of which serves as a warning: .”

Brussels notes that in the event of a complete break with Moscow, even contingency plans drawn up in the context of security of supply, including measures at national and regional level, will not suffice. The Commission emphasizes that if the supply problem affects several Member States at the same time, “additional measures will be needed”.

First, the Community Executive Initiative provides “coordinated rationing and demand reduction across the EU on a principled basis”. And he adds that the measure to reduce consumption will affect all states and not just those directly affected by the austerity measures implemented by the Kremlin. “In line with the principle of solidarity, it should consider reducing gas demand in favor of the least affected Member States in the least affected Member States, even if this rationing has not been carried out on the basis of national emergency plans.” , Defines the project.

The Commission believes that such drastic market interventions will most likely require “the maximum regulated price of gas sent to European consumers and businesses to cover the state of emergency declared by the Union”. Brussels recalls that under the Security of Delivery Regulation, the Commission is empowered to declare a state of emergency at European level if the State so requests. And that he must declare it if at least two states require it.

One possibility, according to the document, would be to limit the price of gas trading on European exchanges. But he adds that the cap can be “introduced in different ways” and “interfere with different levels of the gas value chain”. And he warns that if public compensation is needed, “and if it doesn’t lead to a significant reduction in consumption”, “it may require significant funding.”

The formula ties in with Italy’s latest proposal, which suggests that the EU should use its enormous power as a consumer to set a joint price cap for its gas imports. Diplomatic sources believe that this will only be possible in consultation with other large consumers, especially the United States.

The community executive, always a defender of the free market, also warns of the risks of meddling in the project. “Such a margin of the EU price […] “It has the advantage of limiting the harmful effects of price slowdowns to consumers and businesses to a predetermined level,” he said. “But it also brings a lot of challenges.”

Brussels considers that after the declaration of the state of emergency it will be necessary to ensure that the introduction of the limit does not harm the EU’s access to world gas and liquefied natural gas, a “vital” stream, as any reduction of hydrocarbons in the situation. Shortage “This will lead to further deterioration.” The text also warns of another side effect of market legislation: setting a price cap, it warns, “will automatically limit the potential for reducing gas demand based on prices. [es decir: cuanto más caro, menos gas se compra]”It affects the balance between supply and demand.”

An example of an Iberian exception

The Commission is also launching a new set of proposals on the wholesale electricity market to end the contagious impact of the war on gas and electricity prices. Among them is a mechanism that Spain and Portugal have agreed with Brussels to cut electricity bills, an intervention of calibre that a few weeks ago was seen as an abomination to public capital. The mechanism involves setting a price cap for the natural gas that supplies thermoelectric plants, which in turn leads to a reduction in the consumer’s electricity bill.

The document demands that these temporary “grants” already awarded by “some Member States” are intended to avoid distortions of competition or distortion of the internal market, and calls for an agreement on the mechanism with neighboring countries, which can be done. Affected and combined with other measures to reduce electricity demand.

The Commission also states that it considers it “justified” to tax Member States’ so-called peak profits of electricity companies, which were inflated with abnormally high gas prices during the war. With this income, the capital can “finance concrete and interim measures to support vulnerable families and businesses,” according to the project. With the current outlook for a slowdown and a particularly grim winter scenario, the Commission believes these measures could be extended beyond June 30, 2022 to “cover the upcoming warming season”.

The energy crisis plaguing the territory of the community has also prompted Brussels to reconsider its electricity market, a request that Spain, along with other countries such as France, has been leading since last summer.

A report by the Agency for Energy Regulatory Cooperation (ACER), published in late April, in which the EU first opened up to changing the design of the electricity market, suggests “possible reforms” to to “optimize” it. An operation that “deserves a deeper analysis”. The Commission outlines areas to consider in this assessment process, including the ability to protect consumers from price volatility through hedging mechanisms that are triggered in extreme situations.

Moreover, it proposes to consider formulas to ensure that investments in electricity generation are compatible with renewable energy sources and with low CO₂ emissions “Union climate objectives” in the light of this interventionism and uncertainty; It provides users with more power and “collective and individual self-consumption schedules” of solar energy; And discusses creating localized price signals in the electricity market that reflect the growing weight of renewables in the energy mix.

The commission, the document concludes, calls for the acceleration of preparatory action under a supply-cutting scenario and recommends twenty-seven whose leaders will meet at a summit in Brussels at the end of May. Action on this point.

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