The EU is open to all kinds of measures to intervene in the market already in the face of Russian gas cuts

Nothing is left out of the discussion. The situation is so critical, the forecasts are so dark, that the European Union does not rule out anything in advance in the face of the energy crisis and the Kremlin cuts in response to the support of the 27 for Ukraine after the Russian invasion. If a week ago it was the president of the European Commission, Ursula von der Leyen, who announced proposals to intervene and reform the electricity market, now a draft of the rotating Czech presidency of the EU Council has begun to circulate in which she asks the 27 governments, with a view to the meeting next Friday, on all possible measures to respond to the critical situation on the continent.

Price caps and consumer aid: the measures that Brussels points to to intervene in the market

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Gas prices are up more than 30% after Russia's decision on Friday night to keep the Nord Stream 1 pipeline closed. The energy crisis is also putting the euro under intense pressure, falling below 99 cents. US dollar to its lowest level since 2002.

“High energy prices and volatility are fueling rising inflation and are having serious impacts on all businesses and consumers, including the most vulnerable, victims of energy poverty and, increasingly, middle-income households. ”, states the Czech document released by Politico: “Furthermore, the electricity generation capacity in the EU has been significantly lower than usual, in particular due to the nuclear power deficit in some Member States, the decrease in power generation hydroelectric power plant in Europe, the low levels of the Rhine and other rivers that affect coal transportation, and unfavorable wind conditions, among other factors. The shortage in power generation from these energy sources is driving the demand for gas.”

“It is clear that the next heating season will test the resilience of the EU energy market”, states the document of the Czech presidency of the Council of the EU, which analyzes the problems, also for the futures markets that reduce liquidity at present: “Liquidity concerns for electricity trading pose a new challenge to the EU internal market, putting pressure on the hedging positions of market players. Daily price fluctuations have sometimes led to significant increases in margin requirements for futures contracts. This makes it almost impossible for an increasing number of companies to hold their positions, triggering their withdrawal from the futures markets. Lower levels of participation in futures markets reduce liquidity in these markets and, in turn, exacerbate price volatility in a negative feedback loop.”

Thus, the host of the extraordinary meeting of energy ministers next Friday details a long list of “considered options”.

In the first place, the Czech Government speaks of "decoupling/limiting the impact of the price of gas on the price of electricity", something that is already on the market reform agenda of the European Commission, although Brussels raises it for principles 2023. The document adds: “Temporarily limit the price of gas used for electricity production; temporarily cap the price of gas imported from specific jurisdictions [en alusión a Rusia, cosa que también defiende Bruselas y el G-7]; temporary exclusion of the production of electricity from gas from the order of merit and fixing of prices in the electricity market”.

In the matter of setting prices in the electricity market, the European Commission's proposal speaks of putting a cap on inframarginal energies – such as renewables – and allocating the difference between that price and that of gas to help homes and industries.

The EU Council presidency document also talks about “increasing liquidity in the market”. In this sense, it suggests “immediate lines of credit for market participants experiencing very high margin calls [petición de aportación de nuevas garantías cuando las garantías existentes no son suficientes], even with a solution at the European level, for example, through the role of the ECB”; “reform trading rules in energy exchanges, such as temporarily modifying regulatory requirements for guarantees in electricity trading, including review of automatic price cap adjustments”; “temporary suspensions of European energy derivatives markets”; or “support the trading of futures at specific bands”.

The Czech presidency also speaks of "coordinated measures to reduce the demand for electricity", in line with the concerns also expressed by the European Commission. In this sense, it considers “demand reduction measures in the electricity sector, for example, similar to the coordinated demand reduction measures in the gas sector adopted in July 2022” to reduce gas consumption in the EU by 15%.

Likewise, the document, like that of the Community Executive, speaks of "limiting the income of inframarginal electricity producers, temporarily limiting the price of electricity earned by inframarginal generators", the famous benefits that have fallen from the sky. The text also includes the impact of the EU ETS system –the European Union's Emissions Trading System–, and proposes to "assess the options of how to make use of the EU ETS to address the current high electricity prices and guarantee that the advice [los 27 gobiernos] move quickly towards agreement on the REPowerEU chapters in the Recovery and Resilience Plans (RRF), including the possibility of using emission rights from the Market Stability Reserve”.

That yes, Prague affirms that "the following basic principles of the energy policy of the EU must be observed in any intervention". In other words, “the security of electricity and gas supply at European level must be preserved”; “The internal energy market and related benefits must be preserved; the measures must not lead to an increase in gas consumption, nor must they jeopardize efforts to reduce gas consumption in Europe; "The response must be simple to apply and coordinated throughout the EU"; the measures must alleviate the impact on consumers' energy bills”; “coherence with the objectives and implementation of the European Green Deal”.

“The options for emergency measures mentioned above are intended to be an immediate response to the current extraordinary situation”, says the text: “However, we should continue to discuss a systemic update of the design of the Internal Energy Market so that it is better prepared for conditions similar markets in the future. Such an update must be properly considered, based on a comprehensive analysis and impact assessment and take into account the progressive implementation of a future decarbonised energy market.”

Thus, to conclude, the Czech Presidency launches several questions to the Member States: “Do you agree that it is necessary for the Commission to propose measures at EU level to be adopted in time for the next heating season? If yes, which of the options described or alternatives should be followed? What kind of specific instruments would you consider appropriate to achieve a prompt resolution of the aforementioned problems?”