Electricity prices: what we know about the new mechanism proposed by the EU

This is a new proposal that adds to the projects already presented by Brussels on October 18 to curb energy prices. The European Commission proposed, this Tuesday, October 25, a new mechanism to regulate electricity prices as an alternative to a cap on gas prices for electricity production, an idea defended by France.

The European energy ministers, meeting this Tuesday in Luxembourg, are discussing this new proposal which was not part of the "roadmap" adopted at the summit of Heads of State and Government of the Twenty-Seven last week .

During this summit, the leaders had asked the European Commission for "concrete decisions" on a set of measures, including joint purchases of gas, a framework for the wholesale gas market, but also a cap on the price of gas used to generate electricity through a "temporary" mechanism.

This system, already applied in Spain and Portugal, consists of reducing the gas bills of electricity operators - the difference with the market price being covered by a public subsidy - to bring down electricity prices. France demanded the extension of this system to the whole of the EU.

Germany had displayed its strong reluctance. In a concession made in Berlin, this mechanism will have to be accompanied by safeguards to "avoid any increased consumption of gas". It will also have to prevent the EU from subsidizing electricity which would ultimately be exported to neighboring countries (Norway, United Kingdom, Switzerland, etc.).

In a document submitted to the States and consulted by AFP, the European Commission considers that the extension of this system in the EU would have very unequal effects. With a ceiling of 100-120 euros per megawhatth hour, operators would be encouraged to buy more, at the risk of inflating European gas consumption "from 5 to 9 billion m3". The risk is also to see soaring exports outside the EU (United Kingdom, Switzerland, the Balkans, etc.) of electricity subsidized by Europeans.

Finally, the cost of subsidies would vary greatly: States with many gas-fired power stations (Germany, Netherlands, Italy) would pay a very high bill. The big importers of electricity produced from gas would be winners: "The biggest net beneficiary would be France."

"If there is another mechanism, I welcome it with open arms. But what is certain is that (the "Iberian" mechanism) exists in Europe, works and has shown that it is effective: c It is important to watch it to the end", reacted the French Minister for Energy Transition Agnès Pannier-Runacher on her arrival in Luxembourg.

Through its alternative proposal proposed on Tuesday, Brussels outlines "a more structural" and "very quickly" applicable method to act on electricity prices, by increasing the share of contracts fixing in advance the price received by producers. of electricity from renewables and nuclear - according to their real production cost. This would mechanically reduce the volumes of electricity sold at the wholesale gas-indexed market price.

For the time being, still divided on market interventions, European ministers are trying to agree on the terms of joint gas purchases at EU level, a measure on which there is consensus.