Europe unveils plan to curb soaring energy prices


European Commission President Ursula von der Leyen at EU headquarters in Brussels on September 7.KENZO TRIBOUILLARD/AFP/Getty Images

European Commission President Ursula von der Leyen has outlined five key proposals to rein in sky-high energy prices that have plagued the EU this summer – including a cap on the price of Russian natural gas, despite threats by President Vladimir Putin that Moscow would cut off all energy supplies if the bloc took such a step.

European Union energy ministers will discuss the measures in an emergency meeting on Friday, amid accusations that Russia is actively manipulating the natural gas market as it continues its war on the ‘Ukraine.

August was the most expensive month in the history of electricity in Europe, according to Rystad Energy, a research and economic intelligence company. As soaring natural gas prices drove bills skyrocketing across the continent, EU governments spent millions to keep their energy providers from collapsing and customers running out of electricity. money from freezing in the cold months ahead.

Policymakers have also scrambled to find ways to ease the ever-increasing pressure on consumers and businesses and avert economic calamity.

Britain weighs huge package of support as Europe battles energy crisis

Europe has accused Russia of militarizing energy supplies in retaliation for Western sanctions imposed on Moscow following its invasion of Ukraine. Russia blames these sanctions for causing gas supply problems, which it attributes to pipeline failures.

Ms von der Leyen said a cap on Russian gas prices would support current trade sanctions which are already “deeply entrenched in the Russian economy”.

“We need to cut Russia’s revenue, which Putin is using to fund his atrocious war in Ukraine,” she said on Wednesday.

Mr Putin had anticipated the move and said Russia would retaliate.

“We won’t provide anything if it contradicts our interests,” he told an economic forum in Vladivostok.

“We won’t supply gas, oil, coal, oil – we won’t supply anything.”


Monthly average electricity spot prices in Europe

2021-2022, in euros per MWh

Weekly average electricity spot prices in Europe

Russian gas

supply

disturbances

the globe and the mail, Source: RYSTAD ENERGY

Monthly average electricity spot prices in Europe

2021-2022, in euros per MWh

Weekly average electricity spot prices in Europe

Russian gas

supply

disturbances

the globe and the mail, Source: RYSTAD ENERGY

Monthly average electricity spot prices in Europe

2021-2022, in euros per MWh

Weekly average electricity spot prices in Europe

Russian gas

supply

disturbances

the globe and the mail, Source: RYSTAD ENERGY

Alongside the price cap in Russia, European leaders will discuss controlling electricity consumption via a mandatory target to reduce electricity consumption during peak hours. They will also consider a plan to cap revenues for fossil fuel companies and those that produce low-cost electricity without using natural gas, for example through renewables.

Under the plan, EU member states would impose a sort of windfall tax – which Ms von der Leyen called a “solidarity levy” – on fossil fuel companies, and use the money to supporting vulnerable households and businesses and boosting investment in renewable energy.

Oil and gas companies have made huge profits from the energy crisis, Ms von der Leyen said, adding that “all sources of energy must help overcome this crisis”.

Soaring electricity prices have put pressure on utility companies, which have been strained financially by the volatility of electricity markets. The fifth proposal announced on Wednesday addressed this via a plan to help increase the cash that energy companies need to secure futures contracts. (Unlike spot prices, futures contracts delay the payment and delivery of energy to a predetermined date in the future.)

The EU said its member states would help by providing liquidity support through emergency credit lines and limits on margin calls.

“These companies are currently being asked to provide large and unexpected funds, which not only threatens their ability to trade, but also the stability of futures markets,” von der Leyen said.

“These are tough times, and they won’t be over any time soon. But I am deeply convinced that, if we show solidarity, unity and that we have the determination for that, we have the economic strength, we have the political will, then we will win.

The five-point plan announced on Wednesday follows several steps the bloc took earlier this year to weaken Russia’s grip on EU energy supplies.

He created a common gas storage system that is already at 82% capacity, for example, stopped the import of Russian coal and took steps to reduce the supply of Russian oil. It has also invested heavily in renewable energy and diversified its gas suppliers to rely more on the United States, Norway, Azerbaijan and Algeria.

After Russia’s invasion of Ukraine in February, natural gas prices in Europe have been volatile, reaching record highs in August before falling as fears eased over the severity of fuel shortages.

Russia supplied almost 40% of the EU’s total natural gas consumption last year, according to the International Energy Agency, but Ms von der Leyen said on Wednesday such imports had fallen to just 9 %.

Carlos Torres Diaz, head of energy research at Rystad Energy, told The Globe and Mail that the EU must be very careful whatever approach it takes to alleviate its energy problems.

“I think it’s a risky approach to start interfering with the market,” he said in an interview from Oslo, where his own electricity bills have quintupled in recent months.

“This could lead to unexpected developments. Some producers may not be willing to generate as much because they don’t receive such high incentives, or it could also have longer term consequences on investments, for example, because by interfering with the market you are more unsure of what might come next for future projects.

Although he is skeptical of the usefulness of a price cap in Russia, given the high likelihood that Russia will simply stop all exports to Europe in retaliation, Mr Torres Diaz pointed out that a tax exceptional was the proposal most likely to ease the pressure on consumers.

“You always need gas, electricity. So you help those businesses that might be struggling to get the gas or the electricity, and you can also distribute all that money to the people to help pay the bills,” he said.

With a Reuters report

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