EU is weighting on contingency plan to intervene in energy market

The European Union is working on contingency plans to intervene in its energy market as pressure from member states increases to halt rapidly rising electricity prices.

The head of the European Commission, Ursula von der Leyen, said Monday that Brussels is preparing an intervention to decouple electricity prices from the rapidly rising cost of gas – and also longer-term reforms to ensure that electricity prices reflect cheaper renewable energy.

The 27 countries of the EU have disagreed in recent months on whether to intervene in the energy markets, now that the reduced Russian gas supplies to Europe have driven up electricity costs.

But now that gas prices are almost 12 times higher than a year ago and electricity prices are reaching new record highs almost daily, even the most sceptical states are weakening.

Germany is ready to consider a European gas price cap, several Italian newspapers reported on Tuesday, citing a text message sent by the German Economy minister to other European energy ministers.

German Chancellor Olaf Scholz will meet Spanish Prime Minister Pedro Sanchez in Meseberg on Tuesday. Spain, together with Belgium and Greece, has for months tried to limit energy prices and urged Brussels to decouple gas and electricity costs.

EU diplomats said they were waiting for details from Brussels, before their energy ministers approved the EU proposals on sept. 9. during emergency discussions. Important questions include whether the interventions would be limited to the short term.

“So far we have not seen how it will work. Is this a crisis mechanism? How will this fit into the [EU] treaty legally?”said a diplomat.

In the current system, the wholesale price of electricity in the EU is determined by the last power plant needed to meet total demand. Gas plants often set that price, which according to countries like Spain is unfair because cheap renewable energy is sold at the same price as more expensive fossil fuel-based energy.

Von der Leyen will meet leaders from Denmark, Poland, Finland and the Baltic states at a summit near Copenhagen on Tuesday – an opportunity to present the proposals to states wary of market reforms.

Denmark, Estonia, Finland and Latvia – along with Germany, Austria, The Netherlands, Ireland and Luxembourg – had publicly opposed intervention in energy markets last October, saying the best response to short-term price spikes would be to provide national support to vulnerable consumers and businesses.

But after months of soaring prices, such national measures pile governments up with huge bills. According to the Bruegel think tank, EU countries spent 280 billion euros ($281.15 billion) in the past year to protect consumers from energy costs.