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    EU seeks ways to impose a natural gas cap

    September 30, 2022 - CE Noticias Financieras


      There is just one day to go until the extraordinary meeting of EU energy ministers in Brussels, which is expected to approve the proposal for a Regulation on exceptional measures that European Commission President Ursula von der Leyen presented last September 14 in her State of the Union address, in order to alleviate the growing pressure on European households and businesses from high energy prices, which have soared to record highs following the Russian invasion of Ukraine.

      The new measures, focused on reducing electricity demand and redistributing surplus revenues from the power sector to final customers, are a continuation of those already agreed on filling gas storage and reducing gas demand to prepare for the coming winter.

      Regarding demand reduction measures, Brussels proposes to set a mandatory target for cutting demand during peak hours. Specifically, to target the most expensive hours of electricity consumption when gas-fired power generation has a significant price impact, the Commission proposes an obligation to reduce electricity consumption by at least 5% during peak hours. Member States will be required to identify the 10% of hours with the highest expected price and reduce demand during those peak price hours.

      The Commission also proposes that Member States should aim to reduce overall electricity demand by at least 10% by 31 March 2023. To achieve this, they may choose appropriate measures, which could include financial compensation.

      According to the proposed regulation, reducing demand during peak price hours would reduce gas consumption by 1.2 million cubic meters during the winter. Increasing energy efficiency is also a key element in meeting the climate commitments made in the framework of the European Green Pact.

      Cap on renewables and nuclear

      Another of the Commission's proposals is to place a temporary cap on the revenues of infra-marginal electricity producers. This proposal, which the Commission estimates would raise some 117 billion euros, provides for the recovery of surplus revenues from producers with lower marginal costs, such as renewables, nuclear and lignite power plants, by setting a cap on revenues per MWh of electricity produced, which the Commission has decided to set at 180 euros/MWh. This cap should be limited to market revenues, rather than covering total production revenues (including, for example, those from support systems), in order to avoid a significant effect on the expected initial profitability of a project.

      Since the cap will apply to revenues per MWh of electricity produced, price formation on wholesale electricity markets will not be affected. Dispatching of power plants will continue to be done on the basis of their level of efficiency, so that those with the lowest marginal costs will be dispatched first. Cross-border electricity trade will also remain unaffected.

      The cap on market revenues would apply to revenues from the sale of electricity by all infra-marginal generators, as defined in the proposed Regulation, and would cover all market time horizons, irrespective of whether electricity is traded bilaterally or on centralized markets.

      The new measures follow those for storage and gas demand reduction.

      Given that the revenue cap does not interfere with price formation, Brussels believes that consumers would have an interest in entering into long-term power purchase and sale agreements that would allow them to benefit directly from lower prices than those observed in the market. The surplus revenue resulting from the application of the cap will go to final electricity customers, including all purchasers of electricity for own consumption.

      Another proposal put forward by Brussels is to impose a tax on companies in the oil, gas, coal and refining sectors for their extraordinary profits. This would be a one-year temporary solidarity contribution in the form of a levy, which would be around 33% of the 2022 profits of these companies, provided that they have obtained a profit 20% higher than the average of the last three years. The revenue would be redirected to energy consumers - vulnerable households in particular - severely affected companies and energy-intensive industries (see electricity report).

      Another of the announcements made by the President of the European Commission is the creation of a European Hydrogen Bank, which will contribute to guarantee the purchase of this fuel, in particular using the resources of the Innovation Fund, and in which the bloc will invest 3,000 million euros in the coming years to accelerate the development of this technology. This initiative will contribute to Europe's objective of doubling renewable hydrogen production in the European Union by 2030 to ten million tons per year.


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