EU energy ministers agree on measures to tackle energy price spike

Brussels officials are also considering a gas price cap and further reduction in demand

Kadri Simson, the EU's energy commissioner, speaks during a news conference following an extraordinary meeting of energy ministers in Brussels, Belgium. Bloomberg

European Union energy ministers on Friday approved a series of measures aimed at tackling high energy prices, including cutting demand and taxing surplus profits from the energy sector, but fell short of capping gas imports.

The 27 EU member states agreed to several proposals previously made by the European Commission, such as a voluntary overall 10 per cent reduction target for electricity consumption in addition to a mandatory cut of 5 per cent of power consumption during peak hours.

“This won’t be an easy winter for us and next winter will be even more difficult,” said the European Commission’s Energy Commissioner Kadri Simson during a press conference.

Renewable energy producers will see their revenue capped at €180 per megawatt hour due to their unexpectedly high revenue in the past months. The EU’s system of pricing allows for all electricity producers to be paid the same price for the power they are selling despite differences in running costs.

The commission hopes to raise €117 billion with this levy.

“Member states will be able to use the surplus revenue and distribute it to households and small and medium enterprises which are severely hit” by high gas prices, said Czech Minister of Industry and Trade Jozef Sikela.

Fossil fuel producers will also have to make a “solidarity contribution” that countries will be redistributed to the most vulnerable. The contribution would be calculated on 2022 profits that are above a 20 per cent increase on the average profits of the previous three years at a rate of at least 33 per cent.

“It is now crucial to implement the steps quickly so that they can start to have the intended effect,” said Ms Simson.

But both the commission and the Czech presidency of the European Council signalled that further action is needed.

“We are in an energy war with Russia which also strongly affects our industry,” said Mr Sikela.

“An EU-level market intervention is necessary to bring down the cost of the gas purchased by EU customers and reduce the power generation cost from gas,” said Ms Simson.

She told reporters that the commission is studying additional measures such as capping all gas imports and establishing an alternative to Europe’s main reference benchmark for gas, called the TTF, which she said is “artificially inflating prices”.

Disagreements on gas caps

“A wholesale gas price cap is a legitimate option but it requires radical intervention in the market, which means several non-negotiable conditions have to be met,” said Ms Simson.

Capping gas imports may “create risks to the security of supply”, she warned. EU states would have to commit to cut on gas demand “beyond our 15 per cent reduction plan”.

The European Commission had previously proposed to only cap Russian gas imports but “some member states see this as a sanction and we don’t have a consensus”, said Ms Simson.

EU countries disagree on capping gas imports, an idea supported by 15 member states, including Poland and France, but opposed by Germany.

The commission on Thursday circulated a non-paper — an informal document that presents its viewpoint during discussions with representatives of EU countries — detailing that the aim of a gas price cap would limit “limit the influence on Europe’s gas market of Russia’s manipulation of pipeline supplies to Europe” and bring down prices paid by consumers.

Pipeline gas covers two thirds of Europe’s gas consumption, but the war in Ukraine has made the continent increasingly reliant on liquefied natural gas imports as a substitute to Russian supplies.

“Prices in the EU are today significantly higher in Asia or elsewhere,” said Ms Simson.

The European Commission plans to present these additional options to the European Council next week.