Europe’s energy crisis: Ursula von der Leyen unveils five proposals to curb soaring prices

Ursula von der Leyen has unveiled a series of long-awaited proposals to tackle the EU’s worsening energy crisis and curb the soaring bills that are putting European households and companies under financial stress.

The European Commission president proposed an EU-wide plan to reduce electricity consumption, a price cap on the excess revenues made by renewables and nuclear energy, a solidarity mechanism to capture the “massive” and “unexpected” profits reaped by fossil fuel companies, and a state aid programme to inject extra liquidity into struggling utility businesses.

“The manipulation of the gas markets has a spill-over effect on the electricity market,” von der Leyen said on Wednesday afternoon.

“We are confronted with astronomic electricity prices for households and companies and with enormous market volatility.”

Von der Leyen also put forward a price cap on imports of Russian pipeline gas, which, if introduced, could push the Kremlin to retaliate and totally suspend gas flows.

“We must cut Russia’s revenues which Putin uses to finance this atrocious war against Ukraine,” she said.

Over the past few months, Gazprom has reduced the gas flow through its pipelines, shutting down Nord Stream 1 for an indefinite amount of time.

As a result, von der Leyen explained, the share of Russian pipeline gas in the EU’s total imports has plunged from 40% before the war to 9% today. 

Norway, she said, has replaced Russia as the bloc’s leading gas supplier.

The president added her services were also examining the possibility of a price cap on all imported gas, which would include liquefied natural gas (LNG), a commodity that has become key to diversifying away from Russia.

However, this far-reaching cap would not be tabled for the time being.

“LNG is scarce and can be rerouted to different regions,” von der Leyen said. “We [want to] stay competitive for LNG suppliers but make sure that the prices we pay are not extraordinarily high but in a decent range.”

‘We need to flatten the peaks’

The measures presented by the Commission chief are all of exceptional nature and reflect the balancing act between intervening in the free market and guaranteeing the security of energy supplies.

The first proposal, electricity savings, would establish a “mandatory target” for limiting power use during peak hours when the role of gas becomes outsized and the bills swell.

“This calls for smart reduction in demand. We need a strategy to flatten the peaks which drives the price of electricity,” von der Leyen said.

The EU has already put in place a voluntary plan to cut gas consumption by 15% before next spring.

The second proposal is meant to limit the excess revenues made by so-called inframarginal generators, that is, those who don’t use gas to produce electricity, such as renewables, nuclear and coal, and have significantly lower production costs.

Since the final price of electricity is always set by the most expensive fuel to meet demands – in this case, gas – these inframarginal generators are seeing “revenues they never dreamt and that they cannot reinvest as fast,” von der Leyen said.

The difference between the final electricity price and the yet-undefined EU cap would create extra funds for governments, which would then be used to support consumers in need.

“It is now time for consumers to benefit from the low costs of low-carbon energy sources,” von der Leyen said.

A similar mechanism could be applied to fossil fuel companies that trade oil and gas, but this would target their declared profits, rather than the market dynamics.

All the ideas will be further discussed by EU energy ministers on Friday during an emergency meeting, where politicians are expected to give the Commission a clearer political mandate to move ahead.

Once agreed, the measures could be rapidly introduced under an emergency procedure.

Commission officials had previously rejected other drastic proposals, such as subsidies for carbon emissions permits or an outright suspension of the wholesale market.

The executive also dismissed the possibility of applying the Iberian model – a subsidised cap on gas prices – to the entire EU market, fearing it would encourage higher consumption of gas and make countries more vulnerable to Russia’s supply manipulation.

Von der Leyen’s executive has been the target of criticism in recent days, with both European Council President Charles Michel and Belgian Prime Minister Alexander De Croo decrying the late collective response to the energy crisis.

Market intervention “should have been done earlier, and it’s a shame that it took so long,” De Croo said.