Since the dramatic increase in gas and electricity prices over recent months, the EU Commission has presented four emergency regulations. Whilst the first one has already been enforced, at their meeting on 24 November 2022, the energy ministers agreed on two additional regulations. However, so far there has been little support for the fourth Commission proposal for a gas price cap.
On 18 October 2022, the EU Commission presented a proposal for an emergency regulation on better coordination regarding gas market and gas prices and the energy ministers agreed on the proposal on 24 November 2022. According to this, Member States are obliged to aggregate at least 15 % of their respective gas purchases. The EU Commission will also receive more information on gas purchases by individual Member States to prevent mutual outbidding. Apart from that, the Agency for the Cooperation of Energy Regulators (ACER) will be tasked with developing a separate liquefied natural gas index as so far, its price has been determined by the current gas price index. Ultimately, Member States may take measures to reduce non-essential gas consumption of private customers. An example of non-essential consumption is heating a private swimming pool.
Accelerating the development of renewable energies
Another emergency regulation, proposed by the Commission on 9 November 2022, which was also agreed by the energy ministers on 24 November 2022, shall speed up the permitting process for the deployment of renewable energy projects. Hence, permit-granting processes for installing solar energy equipment on roofs or other artificial structures as well as for heat pumps shall not exceed three months. The permit-granting process for modernising existing equipment shall have a deadline of six months and be limited to additional effects compared to existing equipment. Furthermore, a presumption of overriding public interest for all renewable energy projects will be introduced. Thus, concrete projects will benefit from that fact that less strict provisions will apply to various EU laws, for example the environmental impact assessment guidelines or the Natura 2000 protected areas.
Proposal for a gas price cap attracts much criticism
On 22 November 2022, the EU Commission presented the fourth emergency regulation, which shall cap the gas price, if it is at a level of over 275 Euro/MWh for more than two weeks. Apart from that, the gas price must be 58 Euro higher than the LNG reference price. Once these conditions have been met, the Agency for the Cooperation of Energy Regulators (ACER) shall publish a price cap. To ensure security of supply, the EU Commission may suspend this mechanism at any time.
The proposal was instantly criticised by those demanding a lower price cap: even in August 2022, when gas prices were at their highest level, the requirements of the now introduced mechanism had not been fulfilled, a reason why this instrument would have had no effect at all.
Member States must skim off small part of their excess profits
On 6 October 2022, the Energy Council ministers had already adopted the emergency regulation on reducing electricity consumption by at least 5 % during hours when electricity prices are at their highest level and on skimming off excess profits. Hence, the electricity price will be capped at max. 180 Euro/MWh and the excess profits of other energy companies will be taxed with at 33 %. Excess profit is calculated on the basis of those profits, which exceed the average profits of 2019 to 2021 plus an allowance 20 %.
What are the next steps?
In order to come into force, all four emergency regulations have to be proposed by the EU Commission and adopted with a qualified Council majority. Any decisions still lacking shall be made on 13 December 2022 by the Energy Council, and all temporary emergency regulations shall apply for max. 18 months. Apart from that, the EU Commission is currently working on the long overdue reform of the electricity market design. In accordance with its work programme, the Commission intends to present its proposal during the first quarter of 2023.
With regard to the emergency regulation instrument, it has to be pointed out that the EU Parliament is not involved in any concrete negotiations. This means that the only directly elected EU institution will only have an unsatisfactory say with regard to these key emergency measures, which are to tackle high energy prices.