What will the EU emergency plan for the energy crisis provide for?

By Haris Fludopoulos

For the first time, the European Commission is ready to propose even temporary solutions to deal with the energy crisis, which will change the current operating model of the electricity market.

What does this mean practically? As Commission President Ursula von der Leyen said yesterday, “rising electricity prices are now exposing, for different reasons, the limitations of the current electricity market design”, adding that the Commission is now working on an urgent intervention and a structural reform of the electricity market.

According to what has become known, the Commission is working on the technical formula for imposing a ceiling on the wholesale prices of natural gas, with the aim of de-escalating electricity prices in the European markets.

The plan is expected to be finalized and made public by the last ten days of September at the latest, in order to then be approved by the Council of Ministers and the Summit, without excluding this from happening even earlier.

The exact details of the EU’s intervention plan are still being worked out and EU diplomats said the Commission could present a detailed plan as soon as this week.

What will this predict?

Information indicates that with regard to the ceiling, two alternatives are being considered: the first concerns the brake on natural gas imports when they exceed the ceiling that will be set on fuel prices. The expectation is that through the critical mass that Europe has, it will succeed with the application of the ceiling to decisively influence the formation of prices.

The second alternative concerns the application of the Iberian model on a pan-European scale, with the subsidization of natural gas imports. Under this model importers will be compensated for the difference between the ceiling and the price at which they procured natural gas, with the aim of keeping the price of the fuel within the established ceiling.

Disconnection of the electricity market

Alongside the ceiling, other alternatives are being studied with the aim of decoupling electricity prices from natural gas prices. These solutions include the Greek proposal for a radical reform of the Target Model (electricity market operating model).

As is well known, the Greek proposal envisages the separation of the day-ahead market into two legs, where RES, hydroelectric and nuclear will participate in the first and natural gas and coal units will participate in the second. However, the changes in the Target Model will require, unlike the cap on natural gas which can be implemented immediately, a considerable period of time.

Price explosion

It is worth noting that the need to intervene in the electricity market is highlighted by the explosive increase in prices in recent days.

Indicative for today, in 10 countries the price of electricity exceeds 700 euros/MWh. The August average for over 20 countries exceeds €400/MWh while in some countries it even exceeds €500/MWh and is more than double the year-to-date average.

As far as the Greek market is concerned, the price for today stands at 671.14 euros/MWh, with the August average at 427.17 euros/MWh compared to 274.1 euros/MWh which is the average of year. Finally, yesterday, despite the small decline, natural gas prices remained extremely high at 272 euros/MWh.