New EU proposals to curb soaring energy prices

Ursula von der Leyen, European Commission President, has unveiled a series of long-awaited proposals to tackle the EU’s worsening energy crisis and curb the soaring bills that are putting European households and companies under financial stress.

Earlier this month, the European Union presented a five-point plan to overhaul EU power markets that are “no longer fit for purpose”.

The European Commission president proposed an EU-wide plan to reduce electricity consumption, a price cap on the excess revenues made by renewables and nuclear energy, a solidarity mechanism to capture the “massive” and “unexpected” profits reaped by fossil fuel companies, and a state aid programme to inject extra liquidity into struggling utility businesses.

Amid a hard-hitting energy crisis, several governments, including the UK, are presenting plans to alleviate pressure off struggling businesses and consumers.

“The manipulation of the gas markets has a spill-over effect on the electricity market,” von der Leyen said.

“We are confronted with astronomic electricity prices for households and companies and with enormous market volatility.”

Von der Leyen also put forward a price cap on imports of Russian pipeline gas, which, if introduced, could push the Kremlin to retaliate and totally suspend gas flows.

In her annual State of the European Union speech, von der Leyen said countries should be bound to reduce peak hour energy use by 5 percent. She also insisted that electricity producing companies should see revenues capped, and fossil fuel producers should be bound to a ‘crisis contribution’.

What is the EU government proposing? 

The Commission proposes to bind nations into an agreement that will reduce their peak-hour electricity use by 5% and their monthly average electricity demand by 10%.

This might be done by paying certain industries to shut down when necessary, ideally with cross-border coordination to prevent disruption of supply networks for essential goods.

One EU ambassador from an electricity-exporting nation said this would weaken the effectiveness of the policy because countries would be allowed considerable flexibility to choose their “peak” hours to limit power usage.

Skeptics argue von der Leyen has missed the mark on this proposal. It does not address speculative trading on energy markets or the structure of the EU’s power market, which bases electricity prices on the most expensive, final input—in this case, natural gas.

How will this affect businesses?

We spoke with Latif Faiyaz, Head of Energy Trading and Strategy at Northern Gas and Power, to understand how these proposals can affect business across the EU.

1.   What is your reaction to the EU proposal?

The proposals do not fix anything structurally, which was the root cause of the energy crisis. Tax and caps seems to be a theme without any long-term supply and demand fundamental changes. As it stands, it is very vague where we have to wait until the 30th for real direction.

2.   How can businesses prepare for the proposal to reduce energy?

Businesses need to create an internal plan about realistic means to reduce consumption, identifying where energy is used and what is essential and desirable energy usage.

3. What strategies should EU businesses employ during these times?

It’s important for businesses to create an energy strategy, looking at their energy purchasing strategy and looking at long term contracts. They also should look at energy monitoring, to identify where the energy is being used. Then, they can implement energy efficiency and self-generation*.

It could be hard for businesses to know where to start when it comes to lowering energy costs – especially if new government rules mandate less energy use.

Using energy more efficiently across your business and its operations is the fastest and most cost-effective way to save money. It also helps elongate the lifespan of your machinery and reduce your greenhouse gas emissions. Businesses that adopt energy efficient practices often enjoy increased productivity, competitiveness, and profitability.

(*Energy that a user or group of users has locally stored or created utilising renewable energy sources is referred to as self-generated energy. In order to create an economy and society that is sustainable, smart power networks, renewable energy, and energy efficiency are essential.)

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