22 November - To protect EU businesses and households from episodes of excessively high gas prices in the EU, the Commission proposed a Market Correction Mechanism, a temporary and well-targeted instrument to automatically intervene on the gas markets in case of extreme gas price hikes. The new mechanism aims to reduce the volatility on European gas markets while safeguarding the security of gas supply.
The Commission has been tackling the issue of rising energy prices for the past year. Since Russia’s invasion of Ukraine and its further weaponisation of energy resources, the situation on the energy market has worsened considerably.
Despite the significant drop in Russian energy supplies – from 45% of our gas imports last year, to just 14% in September 2022 – Europe has managed to find alternative supplies and reduced its demand to compensate for the shortfall.
We have also taken measures to mitigate market volatility, and to help citizens and businesses by redirecting excessive energy sector revenues to them.
Thanks to the Energy Prices Toolbox , Member States have deployed many measures at national level to ease price pressure on citizens and industry. In May, we adopted the REPowerEU Plan to end our dependence on Russian fossil fuels as soon as possible.
To ensure security of supply for the coming winters, we have put in place new minimum gas storage obligations and a target of 15% gas demand reduction to ease the balance between supply and demand in Europe. Efforts to save energy and fill storage have so far delivered good results.
In September 2022, new measures were adopted to reduce electricity demand and use energy surpluses for the benefit of citizens and industry.
On 18 October 2022, the Commission proposed new measures on joint gas purchasing, price limiting mechanisms, and transparent infrastructure use, as well as on solidarity between Member States and demand management. This will provide further stability to the market.
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Key figures
Diversifying our supply
The EU has been working with international partners to diversify supplies for several months, and has secured record levels of import of liquefied natural gas (LNG) and higher deliveries of pipeline gas.
Achievements
- Trilateral Memorandum of Understanding signed between the EU, Egypt and Israel for the export of natural gas to Europe
- Memorandum of Understanding with Azerbaijan on a Strategic partnership in the field of energy
- The US commitment to provide the EU with additional, at least, 15 billion cubic metres of LNG this year
- In the first half of 2022, non-Russian LNG imports rose by 19 billion cubic metres (bcm) as compared to the same period last year. Non-Russian pipeline imports also grew by 14 bcm from Norway, Azerbaijan, the United Kingdom and North Africa
Reducing demand
To reduce the risk and the costs for Europe in case of supply cuts, the Commission has adopted a European Gas Demand Reduction Plan to help Member States reduce gas demand by 15%.
The Plan is based on three pillars of action:
- switching from gas to alternative fuels
- incentivising consumption reduction
- reducing heating and cooling
Moreover, the Plan includes the possibility to declare a state of EU alert triggering compulsory gas consumption reductions across the Member States. This is a strong signal that the EU will do whatever it takes to ensure its security of supply and protect its consumers.
The Commission is closely monitoring demand reduction measures. Preliminary analysis on the basis of reporting by 15 Member States shows that in August and September 2022 EU gas consumption would be around 15% lower than the average of the previous 5 years. Similar efforts will be needed every month until March 2023. Member States will report every two months on their progress. The Commission stands ready to trigger the EU Alert or review such targets if current measures prove insufficient.
Gas storage has an important role to play in guaranteeing the EU's security of supply, covering, in a normal winter, 25-30% of gas consumed across the EU.
As of June 2022, there is new legislation that requires EU underground gas storage to be filled to 80% of capacity by 1 November 2022 – and to 90% in the years after - to ensure supply for the coming winter.
Buying energy together
In order to secure the EU's energy supply at affordable prices, the Commission and the Member States have established an EU Platform for the common purchase of gas, LNG and hydrogen. It is a voluntary coordination mechanism, supporting the purchase of gas and hydrogen for the Union, by making best use of the EU’s collective political and market weight.
Five regional groups of Member States have already been created within the Platform. Pooling EU demand and joint purchase of gas will allow the EU to use its collective purchasing power to negotiate better prices and reduce the risk of Member States outbidding each other on the already tight market. It will also improve transparency and help smaller Member States in particular, which are in less favourable situation as buyers.
Reducing bills for European households and businesses
To tackle recent dramatic price rise and ease the pressure on European households and businesses, the Commission in September proposed several steps including:
- exceptional measures to reduce electricity demand , which will help reduce the cost of electricity for consumers
- measures to redistribute the surplus revenues in the energy sector to final customers
The first response to tackle high prices is to reduce demand. This can impact electricity prices and achieve an overall calming effect on the market. Based on the Commission proposals, the Member States agreed on;
- a target to reduce overall electricity demand by 10%
- an obligation to reduce demand during peak price hours by 5%
By reducing electricity demand by 5% at peak times, we reduce gas use for power by around 4% over the winter and reduce pressure on prices.
Cap on revenue for low-cost power generation
‘Inframarginal’ electricity producers have been making exceptional profits as high gas prices have driven up the wholesale electricity price, while their generation costs have remained low. The Commission has therefore proposed a temporary EU revenue cap of €180 per MWh of electricity produced from those technologies: nuclear, lignite and renewable sources, among others.
Any revenue above this level will be collected by the Member States and redirected to energy consumers to alleviate the impact of high energy prices.
Member States can use these revenues to:
- Compensate electricity customers for reducing their consumption
- Direct transfers to customers
- Lower electricity costs of customers for limited volumes
- Promote investments by customers into renewables and energy efficiency
- Compensate suppliers who deliver electricity to customers below costs
Solidarity contribution from fossil fuel companies
Oil, gas, coal and refinery companies have also made massive profits in recent months, mostly due to energy market disruptions spurred by Russia’s invasion of Ukraine, rather than business decisions or investments. These companies are not impacted by the aforementioned measures. In the interests of solidarity and fairness, all energy sources must help to mitigate the impact high prices have had on consumer bills. To achieve that, the Commission has proposed a temporary solidarity contribution on surplus profits generated from activities in the fossil fuel sectors in 2022.
How the solidarity contribution would work:
- Collected on excess profits in 2022 and/or 2023
- Covers profits which are above a 20% increase on the average profits of the previous three years
- Member States will collect these revenues
- Estimated to generate around €25 billion to help bring down energy bills
Strengthening EU solidarity
Solidarity is the cornerstone of the Union, and it underpins the efficiency of its action. Five years after agreeing on the Security of Supply Regulation, only 6 bilateral solidarity agreements between Member States have been signed, out of the 40 possible ones. This is too slow, and the Commission has proposed setting default rules on solidarity, which will ensure that a Member State facing an emergency will receive gas from the others in exchange for fair compensation.
The obligation to provide solidarity will be extended to non-connected Member States with LNG facilities provided that the gas can be transported to the Member State where it is needed.
Investing in infrastructure
Through our investments in LNG terminals and gas interconnectors, every Member State can now receive gas supplies from at least two sources, and reverse flows are possible between neighbours. Under the Gas Security of Supply Regulation, Member States must have in place national preventive action plans and emergency plans, and a solidarity mechanism guarantees supply to ‘protected customers' in neighbouring countries in a severe emergency.
Achievements
- On 1 May 2022, the Poland-Lithuania Gas Interconnector started its commercial operation which reinforces optionality and resilience of the whole Baltic gas market and was also supported through the Connecting Europe Facility of the European Commission
- On 1 October 2022, the Greece-Bulgaria Gas Interconnector was inaugurated
Renewables are the cheapest and cleanest energy available, and can be generated domestically, reducing our need for energy imports. The continuing adoption of renewable energy in power generation, industry, buildings and transport will accelerate our independence, give a boost to the green transition, and reduce prices over time. The Commission has proposed to increase the EU’s 2030 target for renewables from 40% to 45%.
With the REPowerEU Plan, the total renewable energy generation capacities would be 1236 GW by 2030, in comparison to 1067 GW envisaged under Fit for 55.
Supporting households and businesses: Recent examples
- The Commission has approved, under EU State aid rules, a Polish scheme to partially compensate energy-intensive companies for higher electricity prices resulting from indirect emission costs.
- The Commission has approved a €220 million Spanish measure to support Cobra Instalaciones y Servicios, S.A. in the production of renewable hydrogen. The measure contributes to the achievement of the EU Hydrogen Strategy and the European Green Deal targets, while helping reduce dependence on Russian fossil fuels and fast forward the green transition in line with the REPowerEU Plan.
- The Commission has approved, under EU State aid rules, a €150 million Finnish capacity mechanism to safeguard security of electricity supply in Finland. The measure will also help reducing CO2 emissions in the electricity sector, in line with the EU Green Deal, and contribute to the objectives of the REPowerEU Plan to reduce dependence on Russian fossil fuels.
Energy saving actions - timeline
- 22 November 2022
Commission proposes a new instrument to limit excessive gas price spikes
- 30 September 2022
Energy Ministers agreement on the Regulation on an emergency intervention to address high energy prices
- 14 September 2022
Proposal for a new emergency regulation to address high gas prices in the EU and ensure security of supply this winter
- 26 July 2022
Energy Ministers agreement on the Regulation on coordinated demand reduction measures for gas
- 20 July 2022
Commission proposal for a Regulation on coordinated demands reduction measures for gas and Communication "Save gas for a safe winter"
- 27 June 2022
Adoption of Gas Storage Regulation
- 18 May 2022
The Commission presents the REPowerEU Plan
- 23 March 2022
Commission proposal to amend the Security of Gas Supply Regulation and a Communication "Security of supply and affordable energy price"
- 8 March 2022
Communication “REPowerEU": Joint EU action for more affordable, secure and sustainable energy”
- 13 October 2021
Communication “Tackling rising energy prices: a toolbox for action and support”