European Policy Tools Won't Take Sting Out of Energy Crisis

Copyright © 2021 Energy Intelligence Group

Brussels has released a toolbox of measures to help fight the energy price crisis in the EU.
As expected, the majority of proposed measures show how little Brussels has at hand to make a major short-term impact on high prices. Instead, much of what Brussels proposes is long term in nature. Short-term measures lie largely with member states. Given the bureaucratic nature of the EU, the European Commission has stated before that it can't do much at the EU level to provide short-term relief — but quick relief is exactly what current sufferers want. Some fear the crisis could prompt an anti-renewables backlash if consumers think the energy transition is costing too much. But the opposite case is also being made — that more renewable capacity, plus energy efficiency, could help the situation.

So far, talk of curbing production or reducing energy use by the energy-intensive sector has been stronger than action but the threat looms large. And concerned parties want short-term solutions. IFIEC, the international federation of industrial energy consumers, says it has "growing concerns" about "extremely high" energy prices in Europe. A spokeswoman for Eurofer, the European Steel Association, told Energy Intelligence this week that "the situation is unfolding fast and unevenly across Europe," impacting producers differently in each member state.


One thing is for sure: There is disharmony among the bloc's 27 members, highlighting the difficulties the EU executive body faces trying to appease each member state — each of which has a unique energy mix but must adhere to EU-wide rules. According to an official document released Wednesday, Brussels is giving support to a toolbox of short-term, domestic remedies proposed by individual member states to help vulnerable consumers and small businesses. These include lump sum payments and payment deferrals, and ensuring customers aren't disconnected if they can’t pay bills. But none will take the heat out of spot prices. The commission has rejected calls to block speculative trading in the EU carbon market. Instead, it says member states should reinject the money made from higher prices into building more renewables and financing socially just energy transition projects.

Brussels is against major sweeping changes such as those proposed by France and Spain, with Energy Commissioner Kadri Simson reiterating this week that the mechanics of the bloc's energy markets are not responsible for the spike in global gas and electricity wholesale prices. However, Brussels has made some concessions. It has asked European energy regulators association ACER to "study the benefits and drawbacks of the existing electricity market design and propose recommendations to the commission where relevant."


Gas market rules are due for an overhaul in December, and Brussels says discussions will focus on measures to increase gas storage, bulk buy gas through a centralized entity and improve security of supply without increasing dependence on Russia. Consumers will also be urged to use low-carbon and synthetic gases made in the EU to cut reliance on imports.

But the proposals underscore the limited tools at the commission's disposal, and it's hard to see how any would bring down prices this winter. Big-ticket items like joint gas purchasing — under which countries could pool resources and set up a strategic gas reserve for emergencies — would take time. Talks have yet to start, and Simson is already warning that the complexities and practicalities outweigh the benefits, so Brussels may well drag its heels.

There were no real surprises in the measures discussed by Brussels on Wednesday. There was also no change in rhetoric about the suitability of the EU's power and gas market rules or the need to concentrate on building more renewables and energy efficiency. "Under the current market design, gas still sets the overall electricity price when it is deployed as all producers receive the same price for the same product when it enters the grid," noting that there is a "general consensus that the current marginal pricing model is the most efficient one, but further analysis is warranted," the commission notes.

Brussels also dismissed calls to curb speculative trading in the bloc's carbon trading market, noting "the effect of the gas price increase on the electricity price is nine times larger than the impact of the carbon price increase." These energy issues will be hotly debated at an EU summit on Oct. 21-22.

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