Europe’s energy crisis: How will EU ministers address rising prices?

The European Union faces an unprecedented energy crisis and is seeking ways to curb soaring prices with the Commission proposing a number of measures that member states will debate.

Euronews hosted a live Twitter Space on Thursday to debate the energy proposals on the table and how the EU could intervene in the energy market.

Here’s a look at the discussion; you can listen to the debate below.

How does the EU electricity market work?

To start, Elisabetta Cornago, a senior research fellow at the Centre for European Reform, explained that the way the EU energy market is designed, demand is met by the cheapest power plants up until the most expensive power plants.

The most expensive power plant then determines the price for the entire market.

Gas, which is currently the most expensive source due to Russia’s war in Ukraine, is now setting the price for the entire market.

Other energy sources essentially get extra profits due to how the system works. It’s this aspect of the system that EU member states are seeking to change.

How could a price cap on lower-cost energy sources impact consumers?

The European Commission has proposed a revenue cap on non-gas producers, including nuclear, coal and renewables to bring down prices.

This means that they would not earn more than the fixed price — and the revenues above the price cap would go back to governments. The intent is that the money will be used to protect vulnerable households and companies, Cornago explained.

Andreas Schroeder, head of energy analytics at ICIS – Independent Commodity Intelligence Services, said that he thinks it’s likely that member states would be in favour of this price cap and that it could bring down prices for consumers.

Cornago pointed out however that the revenue cap would be an “interim solution” with some governments likely wanting to go a bit further.

What are the risks of a price cap on Russian gas?

The fifth proposal from the European Commission is a price cap on Russian gas, which President Ursula von der Leyen argued would “cut Russia’s revenues”.

Schroeder said that a price cap on Russian gas would be more difficult for member states to decide, stating that some eastern EU member states are still highly dependent on it. They worry Moscow could retaliate against such a measure by cutting off supplies altogether. 

“I think it’s not that easy, but what speaks in favour of this price cap is Russian flows are so low already,” Schroeder said.

How does demand reduction play into the EU’s plans to address the crisis?

Cornago at the Centre for European Reform said, “one proposal that would indeed make a big difference…is a target for energy savings on the electricity market.”

The EU Council agreed over the summer that all member states would cut their gas consumption this winter by 15% compared to the average over the last five years.

Now the European Commission wants to have a “mandatory target for reducing electricity use at peak hours.”

“These types of proposals should be one that can really reduce not only the risk of potential blackouts but also can lower the pressure on prices and as such, then reduce energy bills for consumers,” Cornago said.

“It’s absolutely essential,” Schroeder added.

“It’s crucial for the European Union and neighbouring states to curb their consumption…I think this is one of the most critical contributions for us to reduce our dependence on Russian gas imports.”

He said, however, that cuts in the industry sector often come at a higher cost, so he encouraged more contributions from households to cut their energy use.

European Commission proposes ‘solidarity contribution’ from fossil fuel companies

Cornago said the solidarity contribution from fossil fuel companies was the “most mysterious” of the proposals on the table.

“There are energy sector companies that have been making large profits because of the very high gas prices particularly,” she said.

“But also oil has been experiencing a lot of volatility through the summer particularly. And so because of that, because they have been reaping very high profits, that’s why you call them windfall. They were unexpected.”

It’s a way of using those revenues to “fill in the gap that the public budgets are now facing when it comes to helping out consumers”.

Cornago said there’s “increasing awareness” that households and small businesses are suffering and so “there’s this understanding that a lot more needs to be done through the winter, too, to help consumers.”

Schroeder added however that oil and gas corporations are “experts in tax evasion”.

He said however that “these social policies are so much needed in these times to come and to prevent uproar and to prevent discontent with rising energy prices.”

What does the energy crisis tell us about the Green transition?

“It’s really positive to see that most European leaders have been strongly stating that indeed, (there is a need for a) larger the role of renewables in our energy mix (and) a lower the role of gas,” Cornago said.

“I think what this crisis is giving is a renewed impulse to actually go faster towards that goal,” she said.

Another positive change, she says, is talk of reducing energy demand.

“I think there’s been this boom of interest in terms of how do we how can we reduce our heating expenditures by better insulating our apartments, our houses, our buildings,” she said.

Schroeder agreed that there is now an accelerated focus on housing and energy efficiency.

Citing historical energy crises, he added that this energy shock may lead to “a boost for renewable technologies, for other innovative technologies.”

Are you worried about Europe being able to get through this winter?

Schroeder at ICIS pointed out that there are demand reductions for industries that could “have domino effects leading us into a recession”.

“I’m pretty afraid that we are running into very serious economic problems, macroeconomic problems, and they will have other effects as well. And this is not sustainable,” he said.

Cornago warned that this could go on for two or three more years.

“For two or three winters, prices of gas and then consequently of electricity as well are going to be higher than what we saw before the war started,” Cornago said.

“This is where the acceleration of the transition comes in and this is then where, again, you know, it’s important to think about the crisis not only as a gas crisis but also as an electricity crisis, not only in terms of finding alternative supplies but also in terms of trying to understand how we can lower but also make our energy consumption smarter,” she said.

“I think we can cope with the situation now,” Schroeder added.

“We will get out of it, hopefully, strengthened. But the winter will be harsh, I think, and there will be some disruptions. It’s going to be costly.”