January 30, 2023

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The European Commission “proposes the obligation” to reduce electricity consumption by at least 5%

The European Commission sent, on Wednesday, in a statement, that it proposes an “emergency intervention on the European energy markets”, to deal with the recent dramatic price increases.

Thus, according to the quoted source, the Commission wants the establishment of “exceptional measures” to reduce the demand for electricity, which will contribute to reducing the cost of electricity for consumers, as well as measures to redistribute surplus revenues from the energy sector to final consumers.

Here are the official proposals of the European Commission:

-► reducing energy demand through the “obligation to reduce energy consumption”

The Commission believes that if demand is reduced, it could have an impact on electricity prices and an overall calming effect on market tensions. Thus, it proposes that the countries of the European Union have the obligation to reduce the consumption of electricity.

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In order to target the most expensive hours of electricity consumption, when the production of electricity based on natural gas has a significant impact on the price, the Commission proposes an obligation to reduce electricity consumption by at least 5% during selected peak times. Member States will have to identify 10% of the total hourswhich have the highest expected price, and reduce demand during these peak hours.

The Commission also proposes that Member States follow reducing the global demand for electricity by at least 10% by 31 March 2023. They may choose appropriate measures to achieve this reduction in demand, which may include financial compensation. Reducing peak demand would reduce gas consumption by 1.2 billion cubic meters in winter.” – it is stated in the press release.

-► capping the income of electricity producers

The Commission is also proposing a temporary cap on revenues for “inframarginal” electricity producers, i.e. those using lower-cost technologies such as renewables, nuclear and lignite, which feed electricity into the grid at a cost below the price level set by the more expensive “marginal” producers.

“These inframarginal producers have achieved exceptional incomes, with relatively stable operating costs, because the expensive natural gas-based power plants have driven up the wholesale price of the electricity they practice. The Commission proposes setting the ceiling of inframarginal revenues at 180 EUR/MWh.

This will allow producers to cover their investment and operating costs without affecting investment in new capacity, in line with our energy and climate targets for 2030 and 2050. Revenues in excess of the cap will be collected by member state governments and used to you would help energy consumers reduce their bills.

Member States trading electricity are encouraged, in the spirit of solidarity, to enter into bilateral agreements to share part of the infra-marginal revenues collected by the producing State for the benefit of end-users in the Member State with low electricity production. Such agreements must be concluded before 1 December 2022 if a Member State’s net imports of electricity from a neighboring country are at least 100%.” – announces the European Commission.

-► “solidarity contribution” from the profits of oil and natural gas activities

Thirdly, the Commission proposes a “temporary solidarity contribution from surplus profits generated by activities in the oil, natural gas and refinery sectors that are not covered by the inframarginal income ceiling”.

This time-limited contribution would maintain investment incentives for the green transition. This would be collected by member states for profits in 2022 that are above a 20% increase over the average profits of the last three years.

The revenue would be collected by member states and redirected to energy consumers, especially vulnerable households, hard-hit businesses and energy-intensive industries. Member States may also finance cross-border projects in accordance with the objectives of the REPowerEU plan or use part of the revenues for the joint financing of measures to protect employment or promote investments in renewable energy sources and energy efficiency”.

-► electricity prices lower than regulated costs

In a new intervention on electricity market rules, the Commission is also proposing to extend the ‘Energy Price Toolkit’ available to help consumers.

“The proposals would for the first time allow electricity prices lower than regulated costs and extend regulated prices to include small and medium-sized businesses”.

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