All the measures of the new EU Energy Plan: price cap, cuts in consumption, extra profits

During the State of the Union speech, von der Leyen outlined the new EU Energy Plan

(Sustainabilityenvironment.com) – From the price cap on inframarginal the EU expects to raise 117 billion. This will join the flow from the tax to 33% on the extra profits realized from the fossil companies. The revenue will be used to cushion the blow of the gas crisis for those in greatest difficulty. Also confirmed the cut in electricity consumption during peak hours. And again: an intervention to replace the Dutch TTF with a benchmark for the most reliable and time-appropriate gas price. Measures to ensure the liquidity of utilities. And a change to the state aid rules. This is the range of proposals for the new EU Energy Plan presented today in the State of the Union Address 2022 by Commission President Ursula von der Leyen.

Range from which there is no – at least for now – a proposal on the roof for Russian gas. But it is still talking, assures the president. The whole package is now being examined by the Council, which must give the final approval and can amend the proposals. EU energy ministers aim to reach an agreement by the next Energy Council on 30 September.

What the new EU Energy Plan says about the price cap

If on blocking the price of Russian gas the 27 went in random order, the proposals on the price cap for electricity prices and the extraordinary profits made by energy companies in recent months have immediately garnered a broad consensus.

As regards the first measure, the EU Energy Plan draws a price cap for infra-marginals of €180/MWh. It will be temporary with validity until 31 March 2023, unless extended. Specifically, operators who generate electricity from sources other than gas will not be able to sell it in Europe at a higher price.

The figure should be high enough to guarantee profits (higher for those with lower production costs, typically renewables) and therefore not to block investments. But low enough for citizens and businesses to breathe. This price cap applies to wind, solar, geothermal, nuclear, biomass, lignite and some hydroelectric plants.

“In our social market economy, profits are positive. But in these times it is wrong to receive extraordinary record profits by benefiting from the war and on the shoulders of consumers. In these times, profits must be shared and channelled to those who need them most”, argued von der Leyen before the EU parliament in Strasbourg.

Brussels expects EUR 117 billion from this proposal. In practice, the equivalent of those who should mobilize the Social Climate Fund, the instrument designed by the Commission before the energy crisis and the war to cushion the burden of transition for the most vulnerable sections of the population (worth 72 billion, to be co-financed at 50% by the member countries).

This revenue can be used to provide income support, discounts, investments in renewable energy, energy efficiency or decarbonization technologies. But the support that each state will give, must be calibrated so as to continue to encourage a reduction in electricity demand.

Extra profits

On the extra-profit side, the new EU Energy Plan also introduces at the European level a measure already tested by some countries including Italy. It is a 33% tax that will be applied to the profits of the energy companies of gas, oil, coal and refineries if in 2022 they have achieved profits of 20% higher than the average of 2019-2021. Each EU country may decide to raise the percentage of the tax, but not to lower it, or to combine it with similar measures already in force at the national level.

From this measure, which will be in force for at least one year until October 2023, the EU expects the 27 to manage to raise another EUR 25 billion. These resources must also be used to alleviate the burden of the crisis. The proceeds of the “solidarity contribution” should be used to provide financial support to households, in particular the most vulnerable, and the most affected enterprises, to contribute to the reduction of energy consumption, support energy-intensive industries, promote final customer investments in renewable energy, energy efficiency or other decarbonization technologies.

The compulsory cut in consumption

The cut also affects individual citizens. To successfully overcome the winter without Russian gas, Europeans will have to reduce their electricity consumption. By how much? The EU Energy Plan asks the 27 to cut demand by at least 10% until 31 March next year. Within this percentage, individual countries have room for maneuver. But there is a proportion of this reduction that has rigid parameters and is, in fact, mandatory.

Gross electricity consumption must fall by 5% during peak hours, when the price of energy is usually determined by that of gas. There is no fixed number of hours per day when the reduction should be applied, but the cut must cover at least 10% of the hours within a month. The Commission estimates that the measure will result in ceilings on electricity consumption for 3-4 hours a day on weekdays.

Overall, this targeted reduction can lead to a reduction in gas consumption estimated at about 1.2 billion cubic meters over 4 months. This represents a reduction in the use of gas for electricity by about 4% during the winter season.

Other measures coming soon

There are other measures that are not included in the EU Energy Plan but were announced today by von der Leyen. The first mentioned by the President of the Commission is the abandonment of the FTT, the virtual trading point for Dutch gas which de facto sets the price of gas for Europe. “Today our gas market has changed radically: we have moved mainly from gas pipelines to increasing amounts of LNG. But the benchmark used in the gas market – the TTF – did not fit,” von der Leyen said. “For this reason, the Commission will work to establish a more representative benchmark”.

There is then confirmed that a measure is coming on a European scale to support energy utilities in a very serious liquidity crisis. The EU will act by “amending the rules on guarantees” and “taking measures to limit the volatility of intraday prices“. In addition, states will be able to provide guarantees by backing up utilities from October, when the State aid framework is due to be amended.

There is no lack of a look at more structural measures. “These are all first steps. But as we face this immediate crisis, we must also look ahead”, continues von der Leyen. “The current structure of the electricity market – based on the order of merit – no longer do consumers justice. They should reap the benefits of cheap renewable energy”. Therefore, the EU confirms that it wants to decouple gas and electricity prices: “For this we will make a thorough and complete reform of the electricity market”.

Read here the full text of the document Proposal for a COUNCIL REGULATION on an emergency intervention to address high energy prices