European Commission presents toolkit of measures to tackle rising energy prices – Eurasia Review

The European Commission has adopted a communication on energy prices, to fight against the exceptional rise in world energy prices, which is expected to last all winter, and to help European citizens and businesses. The Communication includes a ‘toolbox’ that the EU and its Member States can use to deal with the immediate impact of current price increases and further build resilience to future shocks.

Short-term national measures include emergency household income support, state aid to businesses and targeted tax cuts. The Commission will also support investments in renewable energies and energy efficiency; examine possible measures for energy storage and the purchase of gas reserves; and assess the current design of the electricity market.

The EU, like many other regions of the world, is currently experiencing a sharp rise in energy prices. This is mainly due to increasing global demand for energy, and in particular gas, as the economic recovery from the peak of the COVID-19 pandemic accelerates. The European price of carbon also rose sharply in 2021, but at a slower rate than that of gas. The effect of the increase in the price of gas on the price of electricity is nine times greater than the impact of the increase in the price of carbon.

Presentation of the toolbox, Energy Commissioner Kadri Simson said: “Rising global energy prices are a serious concern for the EU. As we emerge from the pandemic and begin our economic recovery, it is important to protect vulnerable consumers and support European businesses. The Commission is helping Member States take immediate action to reduce the impact on households and businesses this winter. At the same time, we are identifying other medium-term measures to ensure that our energy system is more resilient and more flexible to withstand any future volatility throughout the transition. The current situation is exceptional and the internal energy market has served us well over the past 20 years. But we must be sure that it will continue to do so in the future, by implementing the European Green Deal, strengthening our energy independence and achieving our climate goals.

A toolbox for short and medium term measures

The current price spike requires a rapid and coordinated response. The existing legal framework allows the EU and its Member States to take action to address the immediate impacts on consumers and businesses.

Priority should be given to targeted measures that can quickly mitigate the impact of price increases on vulnerable consumers and small businesses. These measures should be easily flexible in the spring, when the situation should stabilize. Our long-term transition and our investments in cleaner energy sources must not be interrupted.

Immediate action to protect consumers and businesses:

• Provide emergency income support to energy poor consumers, for example through vouchers or partial bill payments, which can be supported by EU ETS revenues;
• Authorize temporary deferrals of invoice payments;
• Put in place safeguards to avoid disconnections from the network;
• Offer temporary and targeted reductions in tax rates for vulnerable households;
• Provide aid to businesses or industries, in accordance with EU state aid rules;
• Improve the international reach of energy to ensure the transparency, liquidity and flexibility of international markets;
• Investigate possible anti-competitive behavior in the energy market and ask the European Securities and Markets Authority (ESMA) to further improve the monitoring of developments in the carbon market;
• Facilitate wider access to renewable energy purchase contracts and support them through accompanying measures.

The clean energy transition is the best insurance against price shocks in the future, and must be accelerated. The EU will continue to develop an efficient energy system with a high share of renewable energies. While cheaper renewables play an increasing role in supplying the electricity grid and setting prices, other sources of energy, including gas, are always needed in times of high demand. In the current market design, gas always sets the overall price of electricity when it is deployed, because all generators receive the same price for the same product when it enters the grid – electricity. There is general consensus that the current marginal pricing model is the most effective, but further analysis is warranted. The crisis has also drawn attention to the importance of storage for the functioning of the European gas market. The EU currently has storage capacity for more than 20% of its annual gas consumption, but not all Member States have storage facilities and their use and obligations to maintain them vary.

Medium-term measures for a low-carbon and resilient energy system:

• Accelerate investments in renewable energies, renovations and energy efficiency and accelerate auctions and renewable energy authorization processes;
• Develop energy storage capacity, to support the evolution of the share of renewable energies, including batteries and hydrogen;
• Ask the European energy regulators (ACER) to study the advantages and disadvantages of the current conception of the electricity market and to propose recommendations to the Commission if necessary;
• Consider revising the security of supply regulations in order to ensure better use and better functioning of gas storage in Europe;
• Explore the potential benefits of voluntary joint purchase by Member States of gas stocks;
• Set up new regional groups of cross-border gas risks to analyze the risks and advise the Member States on the design of their national prevention and emergency action plans;
• Strengthen the role of consumers in the energy market, empowering them to choose and change supplier, generate their own electricity and join energy communities.

The measures presented in the toolbox will make it possible to provide a rapid response to the current surges in energy prices, which are the consequence of an exceptional global situation. They will also contribute to an affordable, fair and sustainable energy transition for Europe and to greater energy independence. Investments in renewable energy and energy efficiency will not only reduce reliance on imported fossil fuels, but also provide more affordable wholesale energy prices that are more resilient to global supply constraints. The clean energy transition is the best insurance against such price shocks in the future, and must be accelerated, also for the good of the climate.