26th Jan 2023

EU unveils energy crisis plan, but warns of difficult 'winters'

  • EU hopes to raise more than €140bn for member states to cushion the impact of the energy crisis, Commission president Ursula von der Leyen told MEPs in Strasbourg (Photo: EC - Audiovisual Service)
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With high energy prices damaging the EU economy and fueling social anxiety across the bloc, the European Commission has finally put forward an emergency plan to intervene in the markets — amid fears over rationing and power blackouts this winter.

"At this stage, prices remain high and there is no quick fix. The next winters will be difficult. Not just this one. Make no mistake about that," EU Green Deal chief Frans Timmermans told a press conference on Wednesday (14 September).

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Crisis measures include imposing cuts in power-consumption across the bloc, a cap on the excess revenues made by renewables and nuclear energy and a "solidarity mechanism" to channel the massive and unexpected profits of fossil fuel firms to citizens.

"In these times, it is wrong to receive extraordinary record revenues and profits benefiting from war and on the back of our consumers. In these times, profits must be shared and channelled to those who need it most," EU Commission president Ursula von der Leyen told MEPS at her annual state of the union address in Strasbourg.

Under the commission plan, wind and solar farms as well as nuclear energy firms would see their revenues from electricity production temporarily capped at €180-per-megawatt hour throughout the EU.

Additionally, the oil, coal, gas and refinery sectors would be required to share 33 percent of their surplus profits from the fiscal year 2022. This so-called solidarity mechanism would apply in addition to regular taxes and levies foreseen under national legislation.

The proposals currently on the table could raise more than €140bn for member states to cushion the impact of the energy crisis driving up inflation, von der Leyen also said.

Most vulnerable

EU countries are expected to use such revenues to help consumers, especially the most vulnerable households, reduce power-usage in the country or support energy-intensive companies under certain conditions.

However, according to Timmermans, there also has to be solidarity between member states.

"If these measures do profit some member states more than others, I think the revenues should go to those countries where the high electricity price is paid," he said, calling upon member states to enter into their own agreements to get a "fair redistribution" in terms of revenues.

Currently, there are some 36 million Europeans unable to warm their homes adequately. But current prices are likely to lead to an increase in the number of households in energy poverty.

Meanwhile, EU energy commissioner Kadri Simson confirmed Spain and Portugal will continue to benefit from the so-called 'Iberian exemption' since new rules would not set a requirement concerning market price. National authorities need to assess whether the company's revenues will be above the cap and apply only if required, she said.

Cut electricity usage by 10 percent

Aiming to trigger rapid price reductions and cut fossil fuel usage, EU countries would have to reduce their monthly electricity consumption by 10 percent and by five percent during peak price hours.

These targets will help reduce the risk of blackouts and rationing this winter, said Simson, adding that it will be up to member states to identify the peak hours and apply measures to reduce demand.

"This is fundamental for the success to tackle this energy crisis… without demand reduction, it's not going to work," said Timmermans.

Yet, one of the proposals which are notably missing in the emergency plans is the cap on Russian gas imports — an idea which was loomed last week, but rejected already by several member states.

Energy prices have hit record highs in 2020, following the pandemic and the Russian invasion of Ukraine.

EU countries, nevertheless, have managed to fill gas storage facilities at over 84 percent, slightly above the five-year average.

The EU has accused Russia of manipulating markets — which has also prompted many EU countries to call for deep reforms of the energy markets and to decouple gas and electricity prices.

"My diagnosis is the current electricity market design ... is not fit for purpose anymore," von der Leyen told MEPs, pointedly dressed in the yellow and blue colours of the Ukraine national flag, falling short of explaining what type of reform the EU has in mind or when it could come to light.

Under the existing market rules, gas sets the overall electricity price, but several member states, including Spain, France and Greece, have called for decoupling electricity prices from the gas market.

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