EU ministers back gas price cap and windfall levy on power companies

Europe’s energy ministers have signalled support for a temporary cap on the price of gas imports including those from Russia and a windfall levy on energy producers to address “astronomical” costs for businesses and consumers.

After a four-hour meeting in Brussels on Friday, ministers said they wanted the European Commission to propose the emergency interventions to address the energy crisis in the EU. Energy prices have soared after Moscow began cutting gas flows to the bloc in response to western support for Ukraine.

“Ministers agreed that the current levels of electricity and gas prices put pressure on the inflation and the EU economy, threatening the competitiveness of European companies and creating social tensions,” said a statement published by the Czech Republic, which holds the rotating European Council presidency.

“There is a prevailing view of the countries that we need [a gas price cap] as an emergency measure,” said Czech energy minister Jozef Síkela. But he warned that more work needed to be done on the possible impact because “it is from the market point of view the most difficult case”.

Ministers had gathered to discuss nine proposals put forward by the Czech presidency. Other measures presented were reductions to electricity demand and expanding state aid rules to allow rapid interventions such as the bailout of energy producers.

One senior diplomat said he was surprised by the level of consensus among ministers: “I am surprised, but I think the seriousness of the situation has made them want to do something.”

The European Commission had signalled a preference for a cap only on Russian gas prices but several EU diplomats said this was not supported by member states that still rely on Russia for a significant portion of their supplies and fear retaliation by Moscow in the form of further supply cuts.

Kadri Simson, the EU’s energy commissioner, said an overall cap on gas prices could threaten supply. “There is very strong competition in the [liquefied natural gas] market and now it is very important that we can replace the decreasing Russian volumes with alternative suppliers.”

Another diplomat said that while there had been agreement among a majority of member states over a gas price cap, few had agreed on whether it should be on piped gas, all gas imports or on wholesale prices. “It’s a mess,” the diplomat said.

According to one diplomat, the commission on Friday asked Italy, Greece and Belgium — which are pushing for a total cap on gas prices — to come up with concrete proposals for implementing the measure.

The pressure on governments to address soaring energy prices has intensified as the winter heating season approaches, with many companies and consumers facing vastly inflated prices when they renew contracts in the coming weeks.

Last year, the EU imported 155bn cubic metres of Russian gas, 40 per cent of its total supply. That has fallen to 9 per cent since Moscow “indefinitely” cut off supplies through the critical Nord Stream 1 pipeline, according to the commission. Gas prices in Europe are now more than 10 times the average of what they have been over the past decade.

The energy squeeze has been exacerbated by a fall in hydropower generation as a result of drier conditions in Europe this summer and significant reductions in French nuclear power output.

The commission this week recommended that governments impose a levy on revenues for energy companies that do not use gas to generate power. Non-gas producers have been enjoying huge profits because electricity prices are pegged to the price of gas.

The ministers also called on Brussels to come up with measures to co-ordinate a reduction in peak electricity use across the bloc and design tweaks to the increasingly steep collateral requirements on electricity exchanges that have pushed some energy companies to near bankruptcy.

The commission will work on the ministers’ requests over the weekend and will present proposals to member states before commission president Ursula von der Leyen’s annual State of the Union address on Wednesday. Ministers will then have to meet again to approve the commission’s proposals before they can become law.