EU prepares reform of electricity market

EU prepares reform of electricity market
European Commission President Ursula Von der Leyen. Credit: Belga/Nicolas Maeterlinck

The European Union is preparing an “emergency intervention and structural reform” of the European electricity market, the functioning of which has been heavily criticised by some EU Member States in the context of rapidly increasing energy prices.

On 29 August, during an emergency meeting of European energy ministers in Bled, Slovenia, European Commission President Ursula Von der Leyen announced the EU’s intention to intervene in the electricity market.

“Skyrocketing electricity prices are now exposing, for different reasons, the limitations of our current electricity market design,” Von der Leyen said. “It was developed under completely different circumstances and completely different purposes. That is why we are now working on an emergency intervention and structural reform of the electricity market.”

Member States are increasingly calling for the EU to implement price caps on electricity. The Czech Republic, which currently holds the presidency of the EU, convened the meeting of energy ministers and said that a new extraordinary meeting will be held in Brussels on 9 September to agree on the proposed reforms.

“After a weekend full of negotiations, I can announce that I am convening an extraordinary meeting of the Energy Council,” Jozef Síkela, Czech Minister of Industry and Trade, announced on Twitter. The minister spoke of the need to “fix the energy market” at the EU level.

German Chancellor Olaf Scholz, during bilateral talks in Prague on 29 August, said that he would back price caps on the cost of electricity and stated that the EU would quickly reach an agreement.

“We will look very carefully at what instruments we have that we can use to bring down electricity prices,” Scholz told the press. “It is not something that can happen at random, it has to work in a technical sense, but obviously what is being set now as the market price is not a real reflection of supply and demand.”

Decoupling gas from electricity prices

The Czechs may target natural gas, which is used extensively for electricity production and has surged in price due to Russian energy warfare, setting price caps on gas used exclusively for electricity production.

A draft internal document viewed by financial publication Bloomberg at the start of the year suggests that the commission is considering capping gas prices in the case that Russia cuts off supply or prices become unbearable.

“In general, I can perhaps say that, for example, decoupling electricity prices from the cost of gas is one of the paths we can consider,” Scholz noted.

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Belgian Prime Minister Alexander De Croo asked the EU on 29 August to take action in the European energy market. “I really think that we should intervene because the cost of uncertainty is really becoming impossible,” he said at an energy conference in Stavanger, Norway.

“I believe that we should intervene and from my country, we have been advocating price caps in the gas market and the wholesale price market for a long time,” De Croo said.

In Belgium, the spiralling cost of energy is already forcing some businesses to shut down or massively reduce production. Steel producer Aperam has shut down its production in Genk, fertiliser producer Yara has begun to halt production, and flooring company Beaulieu has announced its intentions to do the same.

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