EU to Consider Options to Cut Energy Prices This Decade

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(Bloomberg) — The European Union is set to discuss short-term options to lower energy prices in the coming years, while the green transition takes effect.

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The cost of energy has forced its way up the EU political agenda, with heavy industry blaming it for factory closures and the US and Israeli war with Iran sending oil and gas prices spiking. On Friday, the European Commission, the EU’s regulatory arm, will discuss potential actions to reduce power prices, setting the scene for EU leaders to tackle the issue at a summit on March 19.

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The bloc should focus on changes to relieve the regions and companies most affected, the commission said in a document for Friday’s debate seen by Bloomberg News. Those solutions may be needed for two to five years before the green transition helps lower energy prices, which are still dependent on fossil fuels, according to the document.

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“As a net importer of fossil fuels, the EU will always pay more than the producer countries for the fossil fuels it consumes,” the commission said. “Thus, in the long-term, the direction is clear: homegrown clean energy is the only viable solution for lowering energy prices by the end of the decade.”

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Any policy changes should avoid creating instability or delay the shift to clean sources, according to the document. They should also not lead to further fragmentation of the energy market.

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At the heart of the EU energy debate is the mechanism of marginal price, where renewables are typically used first as the cheapest source and then gas kicks in when demand for energy is higher, becoming the fuel that effectively sets the price. Such a mechanism, used across the world, provides investment incentives to grow renewables and clean technologies, reducing the need for state subsidies, the commission said. 

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A group of seven EU member states, including Sweden, Denmark and the Netherlands, warned EU Energy Commissioner Dan Jorgensen to not introduce reforms that could undermine that market system, according to a letter seen by Bloomberg News. They argue that the rollout of renewables is displacing gas from setting the electricity price.

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“No satisfactory alternative model has been identified,” the ministers of the countries said in a letter dated March 5. 

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The commission highlighted a set of solutions that governments can already use to lower energy prices, including state aid, contracts for difference, power purchase agreements or offsetting the carbon price component in power prices for industrial users. The costs of emissions account for around 11% of electricity bills for the industry and encourage a shift to cleaner energy sources.

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The EU Emissions Trading System, which imposes emission limits in sectors from paper to chemicals to steel, has come under mounting criticism from some energy-intensive industries for boosting their costs. The commission is due to propose a review of  the ETS law in the third quarter of this year. 

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—With assistance from John Ainger.

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