The EU is planning an “emergency intervention” in the bloc’s electricity market to curb rising prices, Commission President Ursula von der Leyen said on Monday. “Spiking electricity prices are now exposing the limitations of our current market design,” he said in Slovenia. “It was developed for different conditions. That is why we are now working for an urgent intervention and a structural reform of the electricity market.” The remarks are a sign that the Commission has departed from its previous defense of the design of the EU’s electricity market — and follows mounting pressure in recent months from member governments who argue that the system was not designed to deal with the energy emergency that caused by the rise in prices after Russia’s invasion of Ukraine. Governments have implemented measures ranging from direct handouts to households to caps on electricity prices. But with spending on short-term measures in countries like Greece now amounting to nearly 4 percent of GDP, lawmakers are pushing hard for an intervention at the European level. “We need to fix the energy market. The EU-level solution is by far the best we have,” Czech Industry Minister Jozef Síkela said Monday, announcing he was calling an emergency meeting of the bloc’s energy ministers for Sept. 9. A spokesman for the Czech government, which holds the rotating presidency of the EU Council, said a European price cap would “definitely be on the table”. Opinions among EU countries are rapidly shifting in favor of reforming energy markets — previously a minority view. “It is necessary for us to make structural changes that will contribute to the rapid sinking of prices,” German Chancellor Olaf Scholz told a news conference in Prague, adding: “There is a great readiness to change something and that seems to me very, very mutual between the leaders states and governments in Europe”. “Clearly what is currently being asked as a market price does not reflect supply and demand in the correct sense,” he said. In a discussion later on Monday with German Economy Minister Robert Habeck, von der Leyen admitted that once the emergency measures were in place, the bloc needed “a fundamental reform of the electricity market”. Spain and Portugal have already received permission from Brussels to cap gas prices, and the chorus of unhappy countries is growing. Last week, Belgian Prime Minister Alexandre de Croix also discussed a price cap with von der Leyen. “The market is completely failing. We have to consider measures that were unthinkable before, such as a complete overhaul of the energy market,” said a spokesman for the Belgian energy ministry. France already has a national energy price cap and has pledged to “cap” prices next year. The Prime Minister of Belgium, Alexander De Crook | Olivier Matthys/AFP via Getty Images Austria, previously skeptical of intervention, is now strongly in favor, with Chancellor Karl Nehammer saying on Sunday: “We must finally stop the madness that is happening in the energy markets… This market will not be regulated by its current form. we call on all 27 EU to stand together to stop this price explosion immediately.” Polish Prime Minister Mateusz Morawiecki was in Paris on Monday and said: “The idea is that it is not the threshold price that determines energy prices for the entire market, because in such a situation, citizens suffer from high prices.” He also returned to Poland’s long-standing call to cap permit prices in the EU Emissions Trading System, which the coal-dependent country also blames for high energy prices. He wants the price, now around €90 a ton, with a ceiling of €30 for two years.
Market mechanism
The EU’s wholesale electricity market was designed to keep prices low, but is now achieving the opposite effect. Part of the problem is that the price of electricity is tied to the price of the most expensive fuel needed to meet demand for each day, called the merit order, which recently has been natural gas. And with Russia’s Gazprom cutting flows—combined with other global supply chain difficulties—the price of natural gas has skyrocketed, sending energy prices skyrocketing. Electricity prices in most of Western Europe rose above 600 euros per megawatt hour during intraday trading on Monday, up eightfold on this time last year, while natural gas futures hit a new record of 340 euros per MWh on Friday — levels that are forcing governments to spend billions to shield consumers and businesses and that could plunge the continent into a painful recession. “The price increases are very worrying for governments and end users, who in some cases are seeing tariff increases of 350 percent or more,” said Glenn Rickson, head of European power analysis at S&P Global. Both natural gas and electricity prices later fell by about 20%, partly on reports that the EU is rapidly building gas storage, providing some protection in case the Kremlin ends gas deliveries altogether. Those wild swings are fueling calls for a review of the bloc’s market-oriented approach to energy — in stark contrast to an April report by the European Union’s Agency for the Cooperation of Energy Regulators, which said market “design” energy [was] is not to blame for the current crisis.” But the current system has fewer and fewer defenders. Dieter Janecek, Germany’s Greens economic spokesman, wants an EU-wide gas price cap of between €100 and €300 per MWh. Even Germany’s liberal Finance Minister Christian Lindner, whose FDP party governs with the Greens and Social Democrats in a coalition government, called for market reform over the weekend, saying it currently guarantees “profits rise billion upon billion at the expense of of the consumers. .” S&P’s Rickson said any reform must meet three criteria: It should have a “clear endpoint” so it does not undermine future investment. It should not “skew” the pan-European market. and discouraging energy conservation should be avoided. Zia Weise, Leonie Kijewski and Laurenz Gehrke contributed to this report. This article is part of POLITICO Pro The one-stop solution for policy professionals who combine the depth of POLITICO journalism with the power of technology Exclusively breaking scoops and ideas Customized policy information platform A high-level public affairs network
