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'Devil's in the details': Energy ministers discuss savings and caps to curb power prices

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By Jorge Liboreiro  & Aida Sanchez Alonso & Alice Tidey
Energy ministers are expected to give the European Commission a clearer mandate on how to proceed with the extraordinary measures to bring down electricity prices.
Energy ministers are expected to give the European Commission a clearer mandate on how to proceed with the extraordinary measures to bring down electricity prices.   -   Copyright  Virginia Mayo/Copyright 2022 The Associated Press. All rights reserved

EU energy ministers gathering in Brussels on Friday to discuss a series of exceptional measures to curb soaring electricity bills and cushion their crippling impact on households and companies.

The emergency meeting will focus on the five draft proposals unveiled earlier this week by European Commission President Ursula von der Leyen:

  • An EU-wide plan to introduce "mandatory" electricity savings during peak hours (usually 7 am to 10 pm).
  • A cap on the excess revenues made by inframarginal generators, namely power plants that use sources cheaper than gas (renewables, nuclear, coal).
  • A "solidarity mechanism" to partially capture the excess profits made by fossil fuel companies (oil, gas and coal) during extraction, refinery and distribution.
  • A state aid programme to inject extra liquidity into struggling utility businesses, those who bring electricity to consumers once it has been produced.
  • A price cap on imports of Russian pipeline gas.

All the proposals are still being developed and concrete details are scant. 

Ministers are expected to debate the measures and bring their own ideas to the table. At the end of the meeting, they will give the Commission a clearer political mandate on how to proceed.

The executive will then expand the selected measures and come back with more comprehensive texts by the middle of next week. A sense of urgency is building to deliver quick and effective action in the immediate term.

"These are tough times, and they will not be over soon," von der Leyen said. 

'Stupid to throw the market out the window'

Speaking to Euronews on the condition of anonymity, diplomats and officials from member states revealed an overall positive assessment of von der Leyen's proposals – but with important caveats and suspicions.

"We're open to look at all the upcoming proposals," said an official from Northern Europe.

"The devil will of course be in the detail," said a senior diplomat.

Out of the five measures, the most popular ones are proving to be the cap on inframarginal generators, the solidarity mechanism on fossil fuels and the state aid programme, which seem to be a deal done.

The inframarginal cap is meant to address the imbalance in how electricity prices are designed.

Under today's liberalised market, the final price of power is set by the most expensive fuel needed to meet all demands – in this case: gas. This means that as gas prices soar, so does electricity, even if cheaper, clean sources contribute to the total mix.

The difference between the final electricity price and the yet-undefined EU cap would create extra funds for governments, which would then create income support for vulnerable households.

The measure does not equate to a decoupling of gas prices from electricity, as countries like Spain, Portugal, France and Belgium have pushed for, but rather a "decoupling of revenues," as one Commission official put it. 

Decoupling is seen as a radical move for the executive and several member states, as well as energy experts, who fear such forceful intervention could backfire and compromise investments in green technology.

"There is an acceptance that the market we built together is worth defending," said a senior diplomat from Western Europe. "Supporting households is completely different than throwing the market out of the window.  That would be very stupid."

'Anything mandatory is met with reservation'

Disagreements quickly emerged on the two remaining proposals: mandatory electricity savings and a price cap on Russian pipeline oil.

While most member states agree on the need to save power to address the current mismatch between supply and demand, there is widespread reticence toward legally binding targets.

"Anything mandatory is always met with reservation in the Council," said an official from a Central European country.

"There is no one-size-fits-all solution which would address the needs of diversified electricity markets in Europe," said an official from Eastern Europe, who challenged the EU's competence to determine national energy policies.

In July, the 27 member states established a voluntary EU-wide plan to reduce gas consumption by 15% before next spring, an example the Commission is keen to emulate for electricity demand.

There is also concern that both reduction plans – gas and electricity – could become contradictory because electrification is one of the key tools to substitute gas as fuel.

However, diplomats recognise savings are an "indispensable part of the equation" to bring prices under control and seem willing to achieve a compromise on the Commission's draft proposal that would add more flexibility and reflect each country's particular circumstances.

'Quasi-sanction'

Even more controversial is von der Leyen's fifth and last proposal: a price cap on Russian pipeline gas.

Although the Baltic states and Poland have asked for a gas embargo since almost the war broke out, most member states – and the Commission itself – have been consistently loath to target this fossil fuel. 

However, the Kremlin's continued manipulation of supplies, which this week resulted in the indefinite closure of the Nord Stream 1, has injected momentum into the idea of capping the price of Russian gas.

Dwindling gas flows make this option more "doable" and less risky, officials said. The share of Russian pipeline gas in the EU's total imports has plunged from 40% before the war to 9% today.

Still, some member states, such as Hungary, Slovakia, Austria and the Czech Republic, remain highly dependent on Russian pipelines coming through Ukraine and could struggle to fill the gap if Moscow were to turn off the gas supply overnight in retaliation for the price cap.

The damage could quickly spill over the single market. European Central Bank Christine Lagarde has warned the eurozone risks falling into recession if Vladimir Putin orders a total suspension of gas supplies.

"We do not consider this as an appropriate measure to alleviate the high energy prices," said an official from a country dependent on Russian gas.

In a non-paper signed by the Commission's energy department, the price cap on Russian gas was described as a "quasi-sanction" primarily meant to slash the revenues the Kremlin obtains from gas exports. The document says the measure would have a limited impact on consumers' bills.

It's still unclear if the unprecedented cap would require the same unanimity as previous sanctions or if it could be approved by a qualified majority under an emergency procedure.

"Even the ones who agree think it's not an easy way forward," said a diplomat from one of the biggest member states.

At the same time, a smaller group of countries, including Italy and Belgium, advocate a cap on all gas imports, including liquefied natural gas (LNG), a high-priced commodity that has become essential to diversify away from Russian fuels.

President von der Leyen said her team is looking into this far-reaching idea but warned that LNG is "scarce" and could be easily re-routed to other regions, mainly Asia, where there is huge demand.

A diplomat from Central Europe admitted there was "no majority in favour" of the price cap on Russian gas and the measure would probably be discarded at the end of Friday's meeting.

The issue could be sent to EU leaders when they meet for a summit in mid-October.