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Soaring electricity prices: here are the three tracks of the European Commission

  • Post category:Economy News
  • Reading time:3 mins read

The European Commission proposes to cap part of wholesale electricity prices, to adopt regulated tariffs for the most vulnerable and to strengthen incentives to reduce consumption, according to a project consulted on Friday by AFP.

The European executive announced on Monday that it was preparing “emergency response“on the electricity market to limit the surge in household and business bills, while working on”structural reform“to dissociate electricity prices from gas prices, which soared with the war in Ukraine.

In a document which will be examined on September 9 by European energy ministers in Brussels, the Commission details three avenues of emergency measures, starting with a cap on wholesale prices for certain sources of electricity.

Today, it is gas that determines the price of electricity

Currently, on the European market, it is the cost price of the last source of electricity mobilized to meet demand at any time, which determines the price imposed on all operators on the continent: this is often from a gas-fired power station.

The other sources of energy (renewable, nuclear, coal) sell the electricity they produce at a price indexed to gas prices, much higher than their operating costs: Brussels therefore proposes to cap the price paid to these power stations , to put an end to the windfall profits made by energy companies.

Support vulnerable households

In return, Member States could “generate additional financial revenue” (different in each country according to its energy mix), which they could use to support the most vulnerable consumers: direct aid, regulated tariffs, reductions in electricity bills.

This is the second recommended measure. “Less than half of states use regulated tariffs, while direct income support remains the most widely used instrument in the EU to support households“, notes the Commission, which wants “provide a greater degree of legal certainty to extend regulated tariffs (…) in particular with the possibility of a clear derogation (to European rules) to also cover SMEs“.

On the other hand, the European executive says it is against an indiscriminate cap on retail prices for all consumers, “an interventionist political measure that risks distorting the markets” and to be expensive for the States.

Push to consume less

Finally, in line with the plan adopted in July to reduce the EU’s gas consumption, Brussels is proposing to intensify the incentive measures to reduce the demand for electricity, in particular by remunerating consumers who restrict their needs, or via calls for tender awarding compensation to manufacturers in exchange for a given reduction in their consumption.