Ursula von der Leyen – Photo © European Union 2022
(STRASBOURG) – The EU Commission proposed Wednesday to reduce electricity consumption by at least 5 per cent during peak price hours, as Europe responds to dramatic price rises and energy supply shortages.
Commission president Ursula von der Leyen in her ‘State of the Union’ address to the European Parliament outlined flagship initiatives which the Commission plans to undertake in the coming year.
With Russian aggression and manipulation affecting global and European energy markets, Ms von der Leyen urged the EU to be resolute in its response. “Today, the Commission is bringing further proposals to the table which Member States can swiftly adopt and implement, to ease the pressure on households and businesses. We continue to stand united in the face of Putin’s weaponisation of gas and ensure we minimise the impact of high gas prices on our electricity costs in these exceptional times,” she said.
A reduction in demand would impact electricity prices and achieve an overall calming effect on the market, she added. To target the most expensive hours of electricity consumption, when gas-fired power generation has a significant impact on the price, the Commission proposes an obligation to reduce electricity consumption by at least 5% during selected peak price hours. Member States will be required to identify the 10% of hours with the highest expected price and reduce demand during those peak hours. The Commission also proposes that Member States aim to reduce overall electricity demand by at least 10% until 31 March 2023. They can choose the appropriate measures to achieve this demand reduction, which may include financial compensation.
The Commission estimates that reducing demand at peak times would lead to a reduction of gas consumption by 1.2bcm over the winter.
The EU executive is also proposing a temporary revenue cap on ‘inframarginal’ electricity producers, namely technologies with lower costs, such as renewables, nuclear and lignite, which are providing electricity to the grid at a cost below the price level set by the more expensive ‘marginal’ producers.
It says these producers have been making exceptional revenues, with relatively stable operational costs, as expensive gas power plants have driven up the wholesale electricity price they receive.
The Commission proposes to set the inframarginal revenue cap at 180 EUR/MWh. This will allow producers to cover their investment and operating costs without impairing investment in new capacities in line with our 2030 and 2050 energy and climate goals. Revenues above the cap will be collected by Member State governments and used to help energy consumers reduce their bills.
Finally, the Commission also proposes a temporary ‘solidarity’ contribution on excess profits generated from activities in the oil, gas, coal and refinery sectors which are not covered by the inframarginal revenue cap. This time-limited contribution would, it says, maintain investment incentives for the green transition. It would be collected by Member States on 2022 profits which are above a 20% increase on the average profits of the previous three years. The revenues would be collected by Member States and redirected to energy consumers, in particular vulnerable households, hard-hit companies, and energy-intensive industries.
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