Europe's plan to tackle the winter energy crisis

Europe’s plan to tackle the winter energy crisis – Mail Bonus

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The European Union will unveil a package of measures this week aimed at curbing soaring gas and energy prices that are fueling record high inflation, hampering industrial activity and causing skyrocketing bills for citizens ahead of winter.

Earlier this month, Russia said it would not reopen its main Nord Stream 1 pipeline to supply Europe – the latest in a series of supply cuts, which Moscow blames on Western sanctions over its invasion of Ukraine.

The European Commission is due to present the EU’s proposals on Wednesday, and governments can then iron out the details, possibly agreeing to them at a meeting of energy ministers on September 30.

Here’s what’s in the draft of the European Commission’s upcoming proposals, seen by Reuters.

WINTER FEES ON GAS ENERGY PLANTS
The draft EU proposal would claw back revenue from non-gas electricity producers and require governments to spend the money to relieve consumers and industry from rising energy bills.

In the EU system, gas plants often set the electricity price. Non-gasoline-fueled power plants sell their electricity at the resulting high price – even though they don’t have to pay huge gas bills.

Brussels wants to get rid of any excess revenue earned by wind, solar, nuclear and biomass plants under this scheme, according to the draft, which could change before it is published.

The measure would place a price cap per megawatt hour on the revenue these producers receive for their energy in the market. The revenue cap would be applied after the electricity trade is settled, so it would not have a direct effect on prices on the electricity market in Europe, the draft says. It would exclude income from government subsidy schemes.

Coal plants would not be covered because their fuel costs have also risen sharply this year, the draft said.

A draft of the proposal, seen by Reuters on Tuesday, included a revenue cap of 180 euros/MWh – down from 200 euros/MWh in an earlier draft.

That would limit producers’ income to less than half of the current market price. The electricity price in Germany in the first year reached a record high of more than 1000 euros/MWh last month and is now around 460 euros/MWh.

Industry groups say most wind farms in Europe are not reaping windfall profits from high energy prices because they sell their power under fixed-price contracts, many of which are government subsidy schemes – raising questions about how much EU money the measure would raise.

PROFIT SHARING FOR HEALTHCARE COMPANIES
Companies that have made huge profits from selling fossil fuels at record prices would have to make a financial contribution to help citizens and businesses facing sky-high bills under draft EU plans.

EU countries would introduce a temporary windfall tax for oil, gas, coal and refining companies based in the EU. It would apply to 33% of the “taxable profits of these companies in fiscal year 2022,” according to the draft.

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Countries including Italy have already introduced a windfall tax on energy companies. The draft said Brussels would set a minimum interest rate for all EU countries, but governments could choose to raise it higher.

ELECTRONIC EXCHANGE
A draft EU proposal would set a mandatory target for countries to reduce electricity use this winter to ensure Europe has enough fuel to last the colder months.

The EU’s gas storage is now 84% full, which exceeds the EU’s winter replenishment target. But experts say Europe will still need to cut gas consumption over the winter to avoid storage facilities running dry. EU countries have already agreed to reduce demand for gas this winter – and electricity use could be next.

European Union countries would have to reduce their energy consumption by 5% during the 10% of hours with the highest electricity demand each month, the draft said – a measure it said could reduce gas consumption in the power sector by around 4% over four years. -month period.

EMERGENCY COOLING FOR ENERGY COMPANIES
EU countries have also tasked Brussels with designing an “emergency liquidity instrument” to help energy companies facing growing insurance needs.

Utilities sell some power in advance to guarantee a certain price, but must deposit cash with exchanges if they default before the power is produced. Rising electricity prices have meant companies have to put in more margins, leaving them struggling to find the extra cash.

EU officials said plans for emergency liquidity support were still being drawn up and were likely to be published later than Wednesday. A note published by the Commission last week mentioned several options that EU policymakers are considering.

“This could include accepting a wider range of assets as collateral for collateral purposes, facilitating the conversion of collateral, bank guarantees and, as a liquidity provider, participating in sovereign guarantee schemes to support such liquidity schemes,” the commission said in a statement.

NO GAS PRICE THANKS
The EU’s draft proposal did not include a cap on gas prices – an idea that has divided EU member states.

EU countries have asked Brussels to propose a limit, but disagree on whether it should apply to all imported gas, pipeline flows or wholesale gas trade.

Germany, the Netherlands and Denmark oppose a blanket cap on gas prices, warning that it could leave countries struggling to attract supplies in a competitive global market and put Europe’s winter energy security at risk.

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

The EU has also backed away from an earlier plan to cap the price of Russian gas. Countries including Hungary and Austria had opposed the idea if Moscow retaliated by halting dwindling supplies it still sends to the EU.

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