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EC unveils toolbox of measures to tackle impact of energy price surge

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EC unveils toolbox of measures to tackle impact of energy price surge

Highlights

Measures include income support, state aid, tax cuts

Medium term look at market design, supply security

Green Deal to deliver great independence

The European Commission Oct. 13 unveiled a toolbox of measures designed to help governments tackle the extreme energy price crisis that has gripped Europe since September.

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Immediate measures included emergency income support for energy-poor consumers, which could be supported with income from EU carbon allowance sales; temporary deferrals of energy bill payments; safeguards to avoid grid disconnections; aid to companies in line with state aid rules; and facilitating wider access to renewable power purchase agreements.

"The current price spike requires a rapid and coordinated response. The existing legal framework enables the EU and its Member States to take action to address the immediate impacts on consumers and businesses," EU Energy Commissioner Kadri Simson said.

Priority should be given to mitigating the impact of price rises for vulnerable consumers and small businesses, which could be adjusted in the spring when the energy price situation was expected to stabilize, Simson said.

In the medium-term, meanwhile, the EC would move to ensure a more resilient and flexible system able to withstand future volatility throughout the energy transition.

Medium-term measures the EC has floated include:

  • Accelerating renewable energy project permitting and investments
  • Developing energy storage including batteries and hydrogen
  • Asking regulators to review electricity market design
  • Consider revising the security of supply regulation to ensure better use and functioning of gas storage in Europe.

"The current situation is exceptional, and the internal energy market has served us well for the past 20 years," Simson said. "But we need to be sure that it continues to do so in the future, delivering on the European Green Deal, boosting our energy independence and meeting our climate goals."

There was general consensus that the current marginal pricing model was the most efficient market design, but further analysis was warranted, the EC said.

"The crisis has also drawn attention to the importance of storage for the functioning of the EU gas market. The EU currently has storage capacity for more than 20% of its annual gas use, but not all member states have storage facilities and their use and obligations to maintain them vary," it said.

Trouble in the ranks

The EC's statement came after both France and Spain called for long-term power contracts or regulated tariffs linked to generation costs as an alternative to wholesale power market pricing based on the marginal unit cost.

French finance minister Bruno Le Maire has been calling for a thorough review of electricity markets for some time, in the context of France attempting to renegotiate with the EU on reform of its ARENH nuclear release program.

Spain, meanwhile, has intervened with a proposed gas price-related clawback tax on low-carbon power generators, notably nuclear and hydro, but also some non-subsidized renewable energy assets. Power sector organization AELEC said this could cost the sector more than Eur5.00 billion ($5.8 billion).

On Oct. 8, Eurelectric Secretary General Kristian Ruby said "panic interventions" by EU member states made wholesale price inflation worse, damaged investor confidence and set the energy transition back.

"Leadership should be about staying the course on free trade, transparency and competition, and not letting this situation compromise basic principles," Ruby said.

Early impacts

The impacts of surging energy prices are already being felt ahead of winter peak demand.

A dozen small energy suppliers in the UK have gone bust as a result of rising wholesale energy prices, requiring last-resort suppliers to take on two million customers. In Germany, meanwhile, E.ON has suspended taking on new household gas customers.

Dutch TTF natural gas prices for Calendar 2022 spiked as high as Eur66.30/MWh ($76.6/MWh) on Oct. 5, compared with Eur33.25/MWh on Sept. 1, according to S&P Global Platts data.

EU carbon allowance futures contract prices for December 2021 delivery also rallied to an all-time closing high of Eur64.72/mt on Oct. 5, further contributing to a rise in electricity prices.