Brussels studies limiting the price of renewable energy to lower the electricity bill | Economy
Brussels begins to trace the route to implement this “emergency intervention” in the electricity market to control the electricity bill that the President of the European Commission, Ursula Von Der Leyen, has spoken about this week. The plan would go through limiting what companies charge for “inframarginal” technologies such as renewables that contribute to the final price of the kilowatt, according to a document from the technicians of the European Commission, to which EL PAÍS has had access. To this would be added a “coordinated reduction in demand” for electricity that would seek to promote both among companies and at the private consumer level.
Department of Energy officials are working on an urgent fix containing the electricity bill, which is taking inflation to levels more typical of developing countries than of the West. In it, several options are considered and pros and cons of all appear. The Iberian exception, the mechanism that came into force in Spain and Portugal and that has contributed to reducing the electricity bill with a partial cap on gas, has also been weighedbut it would not be among those recommended because, they explain, it would subsidize the generation of electricity with fossil fuels and “it would hinder efforts to reduce their use.”
On Monday, Von der Leyen surprised with the announcement that the Commission was going to launch “in weeks” an “emergency intervention” in the electricity market because “the vertiginous increase in electricity prices is revealing the limitations of our current market design. The movement was preceded by the demands of some executives who have seen how the very high prices of gas have pushed parallel to those of electricity. Belgium, Austria or the Czech Republic were some of these governments, although also within the Commission itself, the president had received pressure. This led to convening an extraordinary meeting of energy ministers for next September 9, in which, in all likelihood, the options proposed by the EU technicians will be included.
“A cap on the price of electricity earned by ‘inframarginal’ generators (such as renewables, including some types of hydropower, or nuclear) to ensure that they do not achieve significant income in excess of their cost,” proposes Brussels. If this measure is applied, underlines the 23-page internal document, it should benefit “entirely” energy consumers. In addition, it emphasizes that it would not have a budgetary impact. Many of the measures now applied by the Member States have a high cost in the public coffers: subsidies for vulnerable groups, tax reductions (the Spanish Government has just announced a reduction in VAT on gas from 21% to 5%).
Electricity prices are now set based on the cost of production of the most expensive technology, in recent times gas. As this fuel is so expensive, due to the Russian invasion of Ukraine and the supply cuts decided by Moscow, the rest of the production sources achieve a very high profitability. Renewable energies especially benefit from this situation, whose technology has been highly developed and has greatly reduced production costs. This has already led the European Commission in some previous documents to recommend that the Member States tax the extraordinary profits that energy companies obtain now. Hence, the technicians warn that if Brussels finally opts for this new route, the logical thing would be to end this type of tax that some countries, including Spain, have already adopted or announced.
The so-called marginalist pricing mechanism in the EU was designed this way because it sought to incentivize investment in renewable energy to achieve the transition to a low-carbon economy as quickly as possible. And, at the same time, it aims to collect the signals of the market and the demand for energy. All this has been broken with the invasion of Ukraine, hence the “emergency intervention” that Von der Leyen spoke of is justified. However, so that clean generation sources do not lose their attractiveness, the technicians propose creating “incentives” for investment, explains the document, which still does not have the approval of the political leaders of the European Commission or its legal services. .
The option of limiting the benefits of renewable energies stands out from the Iberian exception, which the Spanish Government intends to propose as an emergency solution in Brussels. Instead, It is very similar to the one already raised by the Third Vice President and Minister of Ecological Transition, Teresa Ribera, in September of last year and that it did not come into force due to the strong rejection of the electricity companies, especially Iberdrola, and because it was not to the liking of the European Commission itself at the time.
Next to the limits to the profits of the cheapest technologies, the technicians also take another important step. They propose mandatory measures to reduce demand, which represents a leap over what has been done so far, which has moved in the field of recommendation and voluntariness. It reads in non paper, as this type of draft is called in community jargon, that “a static objective of general reduction in demand” could be set to reduce consumption, especially during peak hours. To do this, they advocate developing “supply schemes” that allow different categories of consumers (households, companies) to stop or shift their consumption from times of high demand to off-peak hours, among others.
Beyond the fact that these measures could lead to a lower consumption of gas for the production of electricity in the EU, the experts stress that they would have an indirect positive impact on guaranteeing the security of the electricity supply. The objective is to “mitigate high prices, with positive effects on the security of electricity supply during the crisis”, in a similar way to the proposal already launched to reduce gas demand, they point out in this regard. In addition, they indicate, it is a measure that can be quickly implemented at the European level (although they do not agree on whether it should be a mere “recommendation” or an obligation for all Member States) and that “it will directly contribute to achieving the decarbonization objectives of the EU”.
Experts consider it feasible that these proposals form part of a “winter package”, that is, within the measures that should be approved more quickly in the face of the approaching cold this season.
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