Members' Research Service By / October 12, 2022

Emergency intervention to address high energy prices in the EU

The Russian invasion of Ukraine has had a very negative impact on European energy markets, threatening security of supply and raising energy prices for consumers sharply.

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Written by Alex Wilson.

On 30 September 2022, the Council of the European Union agreed an urgent regulation to address the problem of very high energy prices in the EU. The Council regulation would raise revenues for Member States to compensate energy consumers for rising prices.

Firstly, Member States would receive the excess revenues of electricity generators that rely on cheaper ‘inframarginal’ energy technologies. These companies are obtaining windfall revenues from high electricity prices caused by the exceptional rise in gas prices, rather than from any increases in their own cost of production. Under the marginal pricing model, high gas prices are largely setting electricity prices across the EU.

Secondly, fossil fuel producers in the EU would be subject to a solidarity contribution on their excess profits, at a rate of at least 33 % across the EU. These revenue-raising measures are accompanied by a voluntary target to reduce electricity consumption by ‑10 % and a mandatory target to reduce peak electricity demand by ‑5 %. These efforts would lower the share of gas in the energy mix and diminish its effect in terms of price setting, especially at peak times. Other measures would temporarily allow price regulation for small and medium-sized enterprises (SMEs) and below-cost electricity supply.

The briefing goes on to look at Member State actions in addressing high energy prices and what this implies for a rapidly changing EU framework, with the European Commission expected to adopt further new proposals in the coming months. The briefing then considers some expert views on the reform of EU electricity markets and the European Parliament’s position on high energy prices.

Read the complete briefing on ‘Emergency intervention to address high energy prices in the EU‘ on the Think Tank pages of the European Parliament.

Natural gas market prices in the EU (Dutch title transfer facility (TTF), since 2012)

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