Brussels mulls price cap on renewables and nuclear power to curb bills

The European Union might set a most worth on the electrical energy generated by non-gas producers, particularly renewables and nuclear, with the intention to boost additional income for households underneath monetary stress, in accordance with draft plans circulated by the European Fee.

The measure must be accompanied by an EU-wide plan to chop down electrical energy demand, much like the 15% fuel discount plan agreed earlier than the summer time break.

The concepts, contained in a leaked non-paper seen by Reuters and different media shops, don’t represent an official coverage announcement and are set to be mentioned by EU vitality ministers once they collect subsequent Friday for an emergency assembly.

The Fee believes the three-pronged strategy – financial savings, worth cap and client assist – could possibly be quickly carried out to supply immediate aid throughout the financial system, though it’s unclear how a lot.

“[The measures] won’t carry vitality costs again to pre-crisis ranges or take away the numerous results of the disaster on each inflation and the European financial system as an entire,” says the doc.

It additionally guidelines out the introduction of extra radical proposals, together with a full suspension of the wholesale market and controlled retail costs.

The paper is a “preliminary evaluation” and has not been validated by the manager’s authorized companies.

The leak comes simply days after European Fee President Ursula von der Leyen pitched an “emergency intervention” and a “structural reform” within the electrical energy market to tame the spiralling costs besetting households and corporations alike.

Von der Leyen additionally endorsed a worth cap on Russian pipeline fuel flowing to Europe, however this was not featured within the draft paper as a potential resolution.

“We see that the electrical energy market is now not working as a result of it’s being severely disrupted by Putin’s manipulation. And that’s the reason we have to go a step additional,” she mentioned on Friday.

“Putin prefers to burn off fuel than to contractually provide it to Europe or different areas. So save vitality correctly, particularly at peak occasions, in order that we don’t want fuel.”

The Fee chief is scheduled to ship her annual State of the Union handle on 14 September, when she is predicted to unveil additional particulars on options to deal with the worsening vitality disaster.

Marginal pricing underneath scrutiny

Right now’s liberalised electrical energy market relies on a mannequin of marginal pricing.

Underneath this method, all electrical energy producers – from wind and photo voltaic to fossil fuels – bid into the market and supply energy in accordance with their manufacturing prices. The bidding begins from the most cost effective sources – the renewables – and finishes with the costliest ones – on this case, fuel.

Since most EU international locations nonetheless depend on fuel to fulfill all their energy calls for, the ultimate worth of electrical energy is usually set by fuel, even when clear, cheaper sources additionally contribute to the overall combine.

The system was initially praised for reinforcing transparency and selling the swap to inexperienced vitality, however Russia’s invasion of Ukraine has created unprecedented instability.

The continued provide manipulation by Gazprom, Russia’s state-controlled vitality large, has put traders on edge, resulting in rampant hypothesis and record-breaking costs.

Scorching summer time temperatures, persisting drought and a shortfall in nuclear manufacturing have solely augmented the position fuel performs to maintain the lights on throughout the EU.

“We’d like a brand new market mannequin for electrical energy that basically capabilities and brings us again into steadiness,” von der Leyen mentioned.

The doc drafted by her govt rejects drastic concepts, resembling a far-reaching cap on all electrical energy, subsidies for carbon emissions permits or an outright suspension of the wholesale market.

As a substitute, it suggests a extra focused cap for non-gas producers – wind, photo voltaic, nuclear, sure varieties of hydropower, in addition to lignite – who’ve seen a surge in earnings underneath the marginal pricing mannequin.

The distinction between the ultimate electrical energy worth and the agreed-upon cap would yield additional revenues for governments, who would then be obliged to redirect these funds in the direction of customers in want, and probably small- and medium-sized firms.

The Fee recommends international locations flip the funds into direct revenue assist, fairly than into regulated retail tariffs for chosen customers, which danger distorting the free market.

This novel worth cap wouldn’t be suitable with the windfall taxes on vitality corporations that international locations like Spain and Italy have launched in latest months, the leaked doc warns, as a result of these distinctive measures are broader in scope.

The manager additionally dismisses the opportunity of making use of the Iberian mannequin – a subsidised cap on fuel costs – to all the EU market, fearing it might encourage a better consumption of fuel and make international locations extra weak to Russia’s provide manipulation.

Most specialists insist that marginal pricing continues to be one of the best market mannequin in regular occasions and any intervention must be exact and time-limited. Vitality financial savings, they say, stay one of the best software for the EU to make it safely by the winter season.

“There’s a restrict to what a reform of the market design or emergency interventions can do to restrict the value. We should always not assume this type of intervention will magically resolve Europe’s vitality drawback. It won’t. We’re in a really tight market,” Simone Tagliapietra, senior fellow on the Bruegel think-tank, instructed Euronews.

“For my part, the primary resolution will inevitably must do with vitality demand discount, each on fuel and electrical energy.”