Brussels proposes setting a price for renewables decoupled from gas and cutting demand to lower the bill

The European Commission advances in the analysis of how to lower the electricity bill. In a non-paper, a preliminary draft, which has been circulated in Brussels, the technicians advise against the generalization of the Iberian exception –a general cap on the price of gas–, while defending that renewable energies, cheaper, take the entire margin between the price at which they sell and the market price, marked by the most expensive energy, in this case gas. And that this difference, between the price that is paid to inframarginal energies and what they are earning now, becomes a help that lowers the price of the electricity bill. The proposal would set a cap on renewables and relieve public coffers, which suffer both from the aid granted and from tax cuts such as the one announced this week by the Spanish government.

"I firmly believe that now is the time for a price cap on the Russian gas pipeline to Europe," von der Leyen told reporters at a CDu/CSU meeting in Murnau.

“A cap on gas prices can be proposed at the European level, and there is also a legal basis at the European level to temporarily remove profits as an emergency measure at a time of crisis”, he added: “We are seeing that the gas market Electricity no longer works because it is greatly disrupted due to Putin's manipulations."

“We consider that the proposed package of market interventions should consist of three interdependent components”, say the technicians, in the absence of political debate within the Commission and of what comes out of the meeting of EU Energy Ministers on the 9th of September: “The first component has to do with the mandatory gas demand reduction foreseen in the EU plan Save gas for a safe winter and would focus on achieving a similar type of demand reduction also in terms of electricity". In other words, the first thing that Brussels asks for is to spend less electricity, to attack the demand for electricity.

“The second type of intervention”, continues the text, “would introduce a price limit for inframarginal electricity generation technologies [las que emplean renovables, hidráulica o nuclear], which have lower operating costs than gas-fired power plants, with the aim of making the commercial profitability of these technologies independent of the marginal price of electricity”. In other words, setting a price for renewables decoupled from gas.

In this way, “the inframarginal maximum price would provide Member States with financial resources to finance retail price interventions. In this sense, the package would provide greater legal certainty to the efforts of Member States to protect certain types of consumers from the impact of high electricity prices through regulated tariffs”.

“The desired effect [de rebajar la factura de la luz”, dice el documento, “solo se puede lograr con una combinación de estos componentes, donde la reducción de la demanda ayuda a mitigar la presión de los precios, y los ingresos del tope inframarginal ayudan a financiar las intervenciones orientadas al consumidor”.

Bruselas reconoce que “en el contexto específico de la Península Ibérica, la implantación de la medida parece haber generado un beneficio neto [es decir, una reducción del precio de la electricidad superior al coste para los consumidores]”.

However, the document maintains that “although the Iberian mechanism has produced a net reduction in energy prices for Iberian consumers and could achieve such a reduction also at the EU level, this is largely due to the same inframarginal effect to which other measures also point, such as the inframarginal cap. By design, the measure would use public resources and encourage the use of gas for power generation.

Technicians also believe that the measure would lead “to a very significant increase in the use of gas for power generation. This increase in gas consumption would be concentrated in Member States with a large amount of gas power, some of which would be strongly affected at the same time by a possible interruption of Russian gas supply during the coming winter.

“Spain was the first to denounce the market failure”

Government sources explain that the document “has positive elements, such as recognizing that it is necessary to act urgently on the market because it is not working properly in the current situation. And this is recognition of what Spain has been upholding for more than a year. Now we know that last year's price rise was because Putin was preparing his war and manipulating the gas market."

“We said that they were exceptional prices and that exceptional measures were needed, but many said that the market was working properly; now we know that this is not the case”, affirm the sources: “The document proposes to adopt a mechanism throughout the EU to prevent power plants that do not consume gas from charging the price established for gas, obtaining large extraordinary profits, through the system electricity price formation.

The Government points out that "Spain was the first to denounce this market failure and has been a pioneer in designing and applying measures to limit these extraordinary benefits and recover them for consumers, as it has done with the benefits derived from the price of gas ( reduction of gas), of the high prices of CO2 (reduction of CO2), or of the contagion of the price of gas to electricity (Iberian Mechanism)”.

"We are pleased that these measures, which have been questioned in the past, are now being proposed by the Commission," say sources from the Executive: "In fact, the main measure that is proposed is equivalent to one of those measures, adopted last year in Spain: the reduction of gas. It also includes measures to reduce electricity demand and better distribute consumption during the day, avoiding peaks in demand that trigger prices. Spain has been promoting this type of demand management action, but rejects any taxation of savings that puts our industry at risk. As regards the Iberian mechanism, we welcome the fact that the Commission recognizes its net benefits for Iberian consumers. Although each country has different characteristics, due to interconnection with neighbors or generation mix, we believe that the mechanism could be extended to the rest of the EU with adequate provisions to compensate for its different effects in the different national markets”.

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