EU moves to cut peak electricity use by 5%

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Image Source: Bloomberg

The President of the European Unioun (EU), Ursula von der Leyen has called for reductions in electricity use across the union and windfall taxation on energy companies to combat rising costs.

After Russia’s invasion of Ukraine, she told the European Parliament, gas and power prices had reached record highs.

She demanded that peak electricity use be reduced by at least 5%.

The price cap for natural gas, a significant Russian export to the EU, was placed on hold.

A de facto windfall tax on the oil, gas, and coal industries is proposed as part of the Strasbourg plan, which aims to generate “extra income” by skimming off the top of low-carbon energy companies’ profits.

Families and companies in all 27 EU member states will benefit from the estimated €140 billion (£121 billion; $141 billion) in funds raised.

A cap of €180 per megawatt-hour (MWh) would apply to businesses that generate electricity from low-carbon sources like wind, solar, and nuclear.

In contrast, the front-year electricity price in Germany, the EU’s largest economy, was trading on Wednesday at slightly under €500/MWh.

“Power generators with lower operational costs have been able to harvest enormous profits, much above what may have been fairly expected based on investment decisions,” said Frans Timmermans, vice president of the European Commission.

Producers and refiners of fossil fuels would be required to donate 33% of their taxable surplus earnings under the windfall tax.

The EU’s member states will carefully consider the suggestions in the hopes of deciding by the end of this month.

“Europe’s solidarity with Ukraine will remain unbreakable,” Ms. von der Leyen added, announcing that she will return to the country later on Wednesday to meet with President Volodymyr Zelensky.

Olena Zelensky, the wife of Mr. Zelensky, attended the address in the legislature as a special guest.

According to Ms. von der Leyen, making ends meet was “becoming a source of anxiety for millions of businesses and households.”

Since broad sanctions were put in place in the spring, Russia has mostly avoided the expected economic collapse. Instead, with money from oil and gas sales, it has softened the damage.

Since June, Ukraine has been a recognized candidate for EU membership.

In an effort to push Russian soldiers back, it just launched a counteroffensive. This month, it is reportedly recovering thousands of square kilometers of terrain in the east and south.

The EU imposed broad sanctions in response to the invasion, and Russia, a major oil provider, is engaged in a financial war.

40% of the EU’s gas imports came from Russia before the invasion. Since then, it has declined to less than 10%.

This summer, European gas prices were roughly ten times higher than they had been on average during the previous ten years.

Since some of the gas is burned to produce electricity, rising gas prices also raise power costs.

According to Ms. von der Leyen, EU member states were able to stockpile gas reserves for the winter to a level of 84%, well in advance of a deadline in October.

As “reliable” gas sources, she included the US, Norway, and Algeria.

As a greener alternative to fossil fuels, she also disclosed plans to establish a European Hydrogen Bank to encourage investments of up to €3 billion.

The EU is steadfast in its choice to cut electricity use

State of the Union addresses often cover a wide range of topics; this one was no exception. However, since Ursula von der Leyen’s previous address a year ago, the situation has unquestionably changed significantly.

The consequences of Russia’s invasion of Ukraine have exacerbated an energy crisis, which is currently the main concern in the union. Although significant, long-term energy market reforms are being discussed, I understand that they won’t be ready until the next year.

Reduced usage and de facto windfall taxes on energy firms are the main ideas behind the more urgent solutions to high prices.

Read Also: Germany approves energy saving measures for winter 

The head of the European Commission wanted to emphasize Europe’s resolve this winter. According to her, sanctions against Russia were “here to stay.” However, concerns remain regarding the EU’s willingness to apply additional sanctions against President Putin, and the government and people of Ukraine will be closely monitoring any promises to bring Ukraine closer to the EU’s economic and political center.