EU energy ministers meet to approve power savings and revenue caps to curb soaring prices

EU energy ministers are meeting today to approve a first package of emergency measures in an effort to curb soaring electricity bills and coordinate member states’ responses to the energy crisis.

The package on the table to avoid gas rationing this winter includes mandatory power savings, a cap on excess market revenues and capturing surplus corporate profits.

The EU intends to both reduce electricity consumption during peak hours to rebalance the supply-demand mismatch and seize part of the revenues that power plants and fossil fuel companies have made due to high prices.

As ministers discuss the proposals, the core substance of the package is expected to stay intact, with amendments focused on flexibility and practical implementation.

The three measures on the table are:

1. An EU-wide plan to introduce power savings: a mandatory 5% target during peak hours, when gas plays a bigger role in price-setting, and a voluntary 10% reduction in overall electricity demand.
2. A cap on the excess revenues made by power plants that do not use gas to produce electricity, such as solar, wind, nuclear, hydropower and lignite. The cap will be uniform and set at €180 per megawatt-hour. All revenues that exceed the barrier will be collected by governments.
3. A solidarity mechanism to partially capture the surplus profits made by fossil fuel companies (oil, gas and coal). Authorities will be able to impose a 33% levy on the profits made by these companies in the 2022 fiscal year – but only if the profits represent a 20% increase compared to the average seen in the last three years.

The extra funds obtained through the second and third instrument will be re-directed to households and companies under financial stress in the form of subsidies, reduced tariffs or income support.

Countries that have already established similar solutions at the national level will be allowed to continue their schemes if they pursue the same goals as the EU’s package.

The three exceptional measures are in one legislative text, which must be approved by a qualified majority. A green light is widely expected to take place on Friday afternoon, without major obstacles.

“Countries have expressed broad support for the Commission’s text,” a senior EU official said, speaking on condition of anonymity. “We have a solid basis for discussion.”

Ministers will also debate further action to address the energy crisis and exchange views on the mysterious gas leaks that were identified earlier this week on the Nord Stream pipelines. The representatives from Germany, Sweden and Denmark will brief their colleagues on the latest developments.

The missing gas cap

High on the agenda will be an initiative to impose a price cap on all gas imports entering the EU, regardless of geographical origin, and all gas transactions taking place in the single market.

The unprecedented measure has gained traction across the bloc and was this week endorsed by a group of 15 member states, including France, Italy, Spain and Belgium.

“This cap is the priority,” the countries wrote in their joint letter, which doesn’t provide technical details.

As the most expensive fuel to meet all power demands, gas sets the final price of electricity, even where cheaper and greener sources contribute to the total mix.

By capping gas prices, electricity bills will be artificially contained, the signatories believe.

The European Commission remains hesitant and sees the idea as radical and highly risky, Euronews understands. Despite growing calls, the executive has not yet submitted a legislative draft that can be negotiated by ministers.

“There’s unease among the letter’s signatories. They’re becoming more and more nervous about the Commission’s non-reaction,” a senior EU official said. “Fifteen is a strong number.”

Germany, the EU’s industrial powerhouse and largest gas consumer, is opposed to the horizontal price cap, fearing a disruption of supplies.

“The Commission seems to have adopted the sensibility of a very big and very rich country,” said a senior diplomat from a country that signed the letter.

In a document published on the eve of the meeting, the Commission explained that a price cap on all gas imports would upend market forces and require the establishment of a new “entity” to ensure a fair and uninterrupted distribution of supplies among the 27 member states.

“Deciding on gas flows administratively is without precedent in Europe and there is currently nobody at EU level (…) which has this experience and technical capability to undertake this task,” the document reads.

Instead, the Commission suggested a more targeted and time-limited cap on the gas used to produce electricity, although concrete details around this option are so far scarce. 

“This cap has to be set at such a level that it does not increase overall gas consumption,” Kadri Simon, European Commissioner for energy, said on Thursday in remarks to the press.

“The price signal must remain. Why? Because if more gas is used, and bought on a tight global market, this will push the prices up further.”

The executive believes the focus should be on a price cap exclusively on Russian gas, which many member states have already dismissed, and bilateral negotiations with the EU’s leading suppliers, such as Norway.

A diplomat from a country that does not support the horizontal price cap said the measure could incentivise gas consumption at a time when savings have become crucial. The diplomat said it was “not clear” what the 15 countries were asking for in their joint letter.

“They all seem to have a different idea about what a price cap is,” the official said. “The Commission’s proposal [of a targeted cap] doesn’t seem very attractive either. We’re not going to be the ones asking for it.”