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2022-08-30 11:10:00

EUROPEAN ENERGY CRISIS: NO MEASURES

EUROPEAN ENERGY CRISIS: NO MEASURES

ESG TELEGRAPH  - AUGUST 29, 2022 - The EU is preparing emergency measures to curb soaring electricity prices, as the cost of energy breaks records across the continent and utilities turn to the state for emergency support.

As EU officials work to relieve the pressure, Ursula von der Leyen, European Commission president, said the surge in electricity prices was “exposing the limitations of our current electricity market design”.

In a speech in Slovenia on Monday, von der Leyen added that the commission was working on “emergency intervention” as well as structural reforms to the electricity market.

“We need a new market model for electricity that really functions,” she said.

As inflation moves higher and the threat of recession builds, pressure is growing in EU capitals for the bloc to reform the energy market by severing the link between electricity and skyrocketing gas prices.

Europe’s benchmark electricity price has risen to 10 times its decade-long average, in line with a 14-fold increase in the cost of gas, amid fears of shortages this winter.

Shell’s chief executive warned on Monday that the energy crisis would last more than one winter, and the price of German power for next year briefly hit more than €1,000 a MWh for the first time.

The price surge has heaped pressure on utilities even as oil and gas companies enjoy record profits. Uniper, one of Germany’s biggest utilities, said on Monday it had asked for a €4bn increase to an existing €9bn credit line from German state-owned bank KfW to help secure its short-term liquidity.

Wien Energie, Austria’s largest energy company, said wholesale gas and power prices were rising so fast that it was having difficulty financing its operations, adding that it was now in discussions with the country’s government.

Czech industry minister Jozef Sikela said he expected draft proposals in time for an emergency EU energy council next week. “We have to separate electricity prices from gas prices,” he said, adding that the EU could cap the price of gas used for electricity production.

Germany’s economy minister Robert Habeck has also in recent days backed the idea of a “fundamental reform” to decouple the two markets.

Wholesale electricity costs reflect the price of the last unit of energy bought via auctions held in member states. At present, this reflects the price of natural gas rather than cheaper renewable energy.

Gas prices have soared since the start of the war in Ukraine, and they could head yet higher as Russia threatens to further restrict supplies to the bloc. EU leaders including Mario Draghi of Italy and Pedro Sánchez of Spain have pushed for Brussels to consider ways of capping prices.

Even Austria, which has traditionally pursued a fiscally conservative agenda in Brussels, has sided with the interventionists. In a statement on Monday the country’s chancellor Karl Nehammer said he would lobby fellow EU-leaders for a ceiling to be imposed on prices as soon as possible.

The chancellor, leader of Austria’s conservative People’s party, said he had already held discussions with German chancellor Olaf Scholz and Czech prime minister Petr Fiala about the mechanics of enforcing an energy price cap.

“[Russian president Vladimir Putin] must not be allowed to decide on the European electricity price every day,” Nehammer said — warning that urgent action was needed immediately to “save the European economy”.

In Belgium, energy minister Tinne Van der Straeten said on Twitter on Sunday that the European energy market was “failing and urgently needs reform”, emphasising that electricity was being sold at record prices even when it could be produced as cheaply as last year.

Brussels has been wary of ripping up the current market pricing system, given it provides the basis for future investments in renewables and other power infrastructure.

However, von der Leyen hinted in June that the commission would have to reconsider the system, pointing out that the market design was 20 years old and might not be fit for today’s circumstances.

She told reporters at the time she was working on “alternative market designs that could potentially include the decoupling of gas from the formation of the market price”.

The Agency for the Cooperation of Energy Regulators has warned against fundamental reforms to the way the electricity market works, but in April it said there could be a “temporary relief valve” to limit prices automatically when electricity prices suddenly rose sharply.

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Tags: EUROPE, ENERGY, RUSSIA, GAS, PRICE