Once again, on September 9, the EU energy ministers came together to an extraordinary meeting to push plans to tackle the current energy crisis. The European Commission presented a non-paper to address the challenges in the energy market. “We are facing an extraordinary situation, because Russia is an unreliable supplier and is manipulating our energy markets,” warned EU Commission President Ursula von der Leyen as she announced a series of measures ahead of the energy council. “Our unity and our solidarity will ensure that we will prevail.”

Revenue cap for non-gas electricity producers

One set of measures proposed by the European Commission aims to limit the revenues of non-gas electricity companies that profit disproportionately from rising energy costs. Companies producing electricity from renewable energy sources are currently making “enormous revenues, revenues they never calculated with, revenues they never dreamt of and revenues they cannot reinvest,” von der Leyen said. “It is now time for the consumers to benefit from the low costs of low carbon sources, like for example, the renewables,” she said.

“Skimming off the excess revenues should make resources available to EU countries to “support the vulnerable households and vulnerable companies,”

the Commission President said.

Currently, the price of electricity in Europe is mainly determined by expensive gas-fired power plants, which are switched on to produce electricity due to high demand. Because of the Ukraine war, the price of gas has risen sharply and the situation on the energy market is tense. Energy companies that produce cheaper electricity – from wind, solar or nuclear power, for example – are making big profits.

According to a first draft of the legislation seen by dpa, the revenue cap could be set at 200 euros per megawatt hour. Member states would have to put a mechanism in place to collect the revenues exceeding that cap. The amount can however still change until the final bill is proposed.

On September 7, the wholesale market price for electricity in Germany was about 460 euros per megawatt hour. A 200-euro-cap would be good news for the industry, the bank Goldman Sachs said in a statement, as the business plans of most utilities are based on an electricity price of about 50 euros per megawatt hour. The EU Commission stressed in the draft bill that the revenue cap should take into account the production costs and allow further investment.

Von der Leyen also proposed a “solidarity contribution” for fossil fuel companies. “Oil and gas companies have also made massive profits,” von der Leyen said, adding that “all energy sources must help to overcome this crisis.” Revenues from this contribution, collected at national level, should be used to finance reduced energy bills for vulnerable households and businesses and support a faster move to green energy.

Smart savings of electricity

The President of the European Commission, Ursula von der Leyen, speaks after her meeting with the President of the Government, at the headquarters of Red Eléctrica de España, on June 16, 2021, in Alcobendas, Madrid (Spain). Photo: Europa Press (archiv photo)

Von der Leyen also proposed a mandatory target to reduce electricity consumption during periods of high demand to “flatten the curve” of electricity price fluctuations. According to the draft seen by dpa, this target could be set at 5 percent. The commission president also said there is a need to support energy utilities that are currently struggling with the enormous volatility of the markets and face liquidity problems.

Lowering gas prices

The EU Commission’s finally proposed measures aiming to lowering the cost of gas include a price cap on Russian gas. “We must cut Russia’s revenues, which Putin uses to finance his atrocious war in Ukraine. And now our work of the last month really pays off. Because, at the beginning of the war, if you looked at the imported gas, 40 percent of it was Russian gas, since a long time. Today, we are down to 9 percent only.”

Several EU member states including Italy and Poland would like to introduce a price cap on all gas imported to the EU, not just the Russian gas. According to diplomatic sources, the EU Commission is interested in studying the proposal while the Netherlands expressed scepticism not only on the price cap on gas but also towards all the measures aiming to intervene in markets starting from the virtual trading point for natural gas, also known as TTF, in the Netherlands.  

Meanwhile Russian President Vladimir Putin replied warning that any country that introduces a price cap will receive no Russian energy supplies at all: “No gas, no oil, no coal, no fuel oil, nothing.” On September 2, Russian energy giant Gazprom announced a complete shutdown of the crucial Nord Stream 1 gas pipeline from Russia to Germany. The Center for Research on Energy and Clean Air (CREA), based in Finland, estimates that since the beginning of the war in Ukraine, the EU has been the main importer of fossil fuels from Russia, worth 85 billion euros. However, the EU has significantly reduced its fossil fuel imports from Russia over the past six months, the researchers noted.

National outlooks

Slovenia – self-sufficient in electricity, but dependent on gas imports

Slovenia is one of the advocates of a coordinated European approach to electricity price regulation and structural market reform in the face of rising energy prices and speculative purchases. Slovenia is about 75 percent self-sufficient in electricity, the lowest in ten years due to drought, while it is entirely dependent on gas imports, so far mainly from Russia. It gets its gas from the natural gas hub in Baumgarten in Austria, from where it imported 85 percent of its total imports last year since it does not have its own gas storage facilities.

In preparation for a worst-case scenario, the Slovenian government has already taken a series of measures to limit high prices and ensure a smooth energy supply for the population and some businesses. Amendments to the Gas Supply Act to further protect gas consumers from increased supply risks, a bill on guarantees for the main state-owned energy companies and an emergency bill on measures to deal with energy supply crises will be discussed in the National Assembly next week. The latter gives the government the power to directly order state-owned companies to implement energy security measures to ensure a reliable supply of energy in a state of emergency in case of disrupted energy supplies. Representatives of Slovenian businesses insist that the government should set a cap on the price of energy products for businesses.

According to the largest business associations in Slovenia, an agreement on such a solution must be reached at the EU level as soon as possible. Slovenian companies, which are already feeling the first signs of turbulence, have expressed fears of production cuts or even shutdowns and a wave of redundancies if no solution is found. The government is determined to help the economy with additional measures to be agreed in October. Prime Minister Robert Golob has estimated that they could be worth 1.5 billion euros.

MidCat gas pipeline: Spain advocates it, France says no

Meanwhile, Spain and Germany are trying to find alternative solutions. They both advocate the construction of the MidCat gas pipeline that would connect Spain and France. However, the European Commission on September 6 avoided openly supporting the construction of the gas pipeline. French President Emmanuel Macron insisted that his country opposes the project that would cross the Pyrenees, increasing the level of interconnection between the Iberian Peninsula and the rest of the continent.

Macron said he does not understand “the short-term problem that they are trying to solve” with the construction of MidCat and argued that the other two pipelines that currently link the two countries, through the Basque Country and Navarre, are “underused” given that they have been operated at 53 percent of capacity since February.

The European Commission’s energy spokesman pointed out that MidCat is not on the EU’s list of projects of common interest (PCI) because the French and Spanish authorities decided to put it “on hold” pending “new evaluations” after finding that the project was not “mature”. He also stressed that, according to the recently approved new legislation on energy infrastructures, projects based on fossil fuels such as gas cannot be financed with European resources.This would rule out European funding for MidCat. The European Commission’s energy spokesperson insisted that in general, any new investment connecting the Iberian peninsula’s liquefied natural gas (LNG) terminals to the European gas grid through “hydrogen-ready” infrastructure could “contribute to further diversify gas supply in the internal market” and would “help the future green hydrogen potential” of Spain and Portugal and North Africa. But, again, he reiterated that the project that Spain wants “is not at the point where (the European Commission) can assess whether it can receive funding”.

Bosnia’s complete dependence on Russian gas

Bosnia and Herzegovina has no gas reserves and relies completely on Russian gas supplies. Only one branch of the “TurkStream” gas pipeline, which runs from Russia through the Black Sea via Turkey and ends in Bosnia and Herzegovina, supplies the two cities Sarajevo and Zenica including their surroundings, with natural gas.

Work has been underway to expand the gas pipeline network to other parts of the country, but this process is not moving fast enough. For now, Bosnia and Herzegovina has not been added to Russia’s list of “enemy countries.”

Diversification of the supply is planned with the construction of the “Southern Interconnection” gas pipeline, which would connect Bosnia and Herzegovina with Croatia. However, the project is still in the approval phase.

On the other hand, due to thermal power plants and hydro-accumulations, Bosnia and Herzegovina produces sufficient amounts of electricity for its own needs, and part of the electricity produced is exported. It is thanks to exports that electricity companies are managing to sell electricity on the domestic market at more favorable prices. The authorities have announced that by the end of this year there will definitely not be an increase in the price of electricity for households.

This article is published Fridays. The content is based on news by agencies participating in the enr.