Europe: Europe’s plan to solve the winter energy crisis

The European Union will announce a package of measures this week aimed at reducing soaring gas and electricity prices that are fueling record inflation, hampering industrial activity and causing sky-high bills for residents ahead of winter. .

At the beginning of this month, Russia said it would not reopen the main Nord Stream 1 pipeline for supply Europe — the latest in a string of supply cuts that Moscow blames on Western sanctions for its invasion of Ukraine.

European Mission The EU proposals are expected to be presented on Wednesday and governments could then scrap the details, possibly approving them at the September 30 meeting of energy ministers.

This is the text of a draft of the European Commission’s upcoming proposals, seen by Reuters.

The draft EU proposal would cut revenue from non-gas generators and require governments to spend money to support consumers and industry from rising energy bills.

In the EU system, gas plants usually set electricity prices. Air-fueled power plants sell their electricity at a premium – even though they don’t have to pay huge bills for gas.

According to the draft, Brussels wants to eliminate any excess revenue generated by wind, solar, nuclear and biomass plants in this system, which could change before it is published. Father.

The measure would impose a price-per-megawatt-hour cap on the revenue these generators receive to supply electricity in the market. The revenue cap will apply after electricity transactions are settled, so it will not directly affect prices on the European exchange-traded electricity market, the draft said. It would exclude revenues made from government subsidy programs.

The draft said coal plants would not be covered as their fuel costs have also risen sharply this year.

The draft of the proposal, seen by Reuters on Tuesday, includes a revenue cap of 180 euros/MWh – lower than the 200eur/MWh included in the previous draft.

That would limit the generators’ sales to less than half the current market price. Germany’s early-year electricity prices hit a record high of more than 1000 euros/MWh last month and are currently trading at around 460 euros/MWh.

Industry groups say most wind farms in Europe do not profit from high energy prices because they sell electricity under fixed-price contracts, many of which are government support schemes. government – raises questions about how much money the EU measure will raise.

Companies that have made bumper profits from selling fossil fuels at record prices will be asked to make financial contributions to help people and industries grappling with sky-high bills, according to the plan. draft EU plan.

EU countries will impose a temporary wind income tax on oil, gas, coal and refining companies established in the EU. It would apply to 33 percent of these companies’ “taxable surplus profits realized in fiscal year 2022,” according to the draft.

Countries including Italy have imposed a tax on profits earned on energy companies. The draft said Brussels would introduce a minimum rate for all EU countries, but governments could choose to go higher.

The draft EU proposal would impose a mandatory target for countries to cut electricity consumption this winter, to ensure Europe has enough fuel to last through the colder months.

EU gas storage is now 84% full, exceeding the EU’s pre-winter fill target. However, analysts say Europe will still need to cut gas use during the winter, to avoid storage facilities running out. EU countries have agreed to limit their gas needs this winter – and electricity use could be next.

The draft says EU countries will be required to limit electricity use by 5% during the 10% of hours of peak electricity demand each month – a move they say could limit gas use in the industry. electricity about 4% over four-period.

EU countries have also tasked Brussels with designing “emergency liquidity instruments” to help energy companies face soaring collateral demand.

Utilities sell some electricity in advance to secure a certain price but have to make a cash deposit with the exchanges in case they default before producing electricity. Rising electricity prices mean companies have to sign up for larger deposits, leaving some companies struggling to find more cash.

EU officials say emergency liquidity support plans are still being drafted and will likely be announced later on Wednesday. A note published by the Commission last week addressed a number of options EU policymakers are exploring.

“This may involve accepting a wider range of assets as collateral for contracting purposes, facilitating collateral conversions, bank guarantees and, as as a liquidity provider, in relation to state guarantee schemes to support such liquidity mechanisms,” the Commission note said.

The draft EU proposal does not include a gas price cap – an idea that has divided the bloc’s member states.

EU countries have asked Brussels to propose a limit but disagree on whether this should apply to all gas imports, pipeline flows or wholesale gas trading.

Germany, the Netherlands and Denmark oppose a common gas price ceiling, warning that it could make it difficult for countries to attract supply in price-competitive global markets and jeopardize the economy. Europe’s winter energy security.

Italy and Poland are among the supporters who say capping gas prices will reduce bills for citizens and industries.

The EU also abandoned its previous plan to impose a price ceiling on Russian gas. Countries including Hungary and Austria have opposed that idea in the event that Moscow retaliates by cutting off the dwindling supplies it still sends to the EU.

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