How Europe solves the energy crisis. Capping gas prices can help, but it also has its pitfalls iRADIO

The European Union is working on measures that would set a ceiling for electricity or gas prices, but also on long-term plans aimed at ensuring affordable energy prices. Already on September 9, representatives of the member countries will discuss it. They want to discuss various solutions that would help solve the energy crisis not only for households, but also for businesses.



Brno
21:51 September 6, 2022

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While wind, nuclear and other power plants produce electricity relatively cheaply, due to gas prices, production has become more expensive in power plants that use it (illustrative photo) | Source: Reuters

European Union states have long accused Russia of using energy resources to blackmail Western countries in connection with their support for Ukraine. It is mainly used by Gazprom, which is the largest supplier of gas to Europe.

At the same time, deliveries from Russia not only affect gas prices, but also electricity. In the energy system of the European Union, its wholesale prices are based on the most expensive source of energy, the Reuters news agency points out.


Traders don’t know if they can afford to sell electricity to their customers, says economist Navrátil

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While wind, nuclear and other power plants produce electricity relatively cheaply, gas prices have made production more expensive at the power plants that use it for production. Because of this, the purchase prices of their electricity are rising, which also leads to an increase in the prices of other energy companies.

If companies with lower production costs sell electricity at the same price as companies with higher costs, this brings them several times higher profits, given that they do not use expensive gas to produce electricity.

Some countries have already pointed to this fact in the past. For example, Spain has called the energy market “unfair” because it sells relatively cheap energy from renewable sources at the same prices as more expensive electricity from non-ecological non-renewable sources.

However, the reason for the increase in electricity prices is not only more expensive gas. Severe droughts that have reduced the output of hydroelectric power plants and the problems with nuclear units that France has recently been facing have also contributed to the energy crisis.

Proposed solutions

Problems related to energy prices are not only dealt with by the member countries of the European Union, but also by its administrative bodies. The head of the European Commission, Ursula von der Leyen, pointed out that Europe must separate gas prices from electricity prices.


The Czechia has prepared a solution to high energy prices that will replace or supplement the European one, Fiala said

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The Reuters news agency has obtained a draft communication from the European Commission, in which it is written that future proposed solutions should include price caps for some power plants that do not use gas.

According to the European Union, the increase in energy prices brought higher profits to these power plants. Their operation costs significantly less than the operation of power plants affected by the gas crisis, but their electricity prices have increased just the same. According to the union, the money raised from this imbalance could be used to help consumers who are now paying significantly more for electricity due to the crisis.

The Czech Republic, which currently presides over the union, has also proposed several solutions to the situation. He wants to present them to the other member states on Friday. The proposals include capping the price of gas imported from certain countries, capping the price of gas used to generate electricity, or temporarily removing gas-fired power plants from the European electricity pricing system.

In addition to the national solution to high energy prices, whose preparations are being finalized these days, we are also working on a European project. Today I talked about its variants with Swedish Prime Minister Magdalena Andersson.

17:57 – 06/09/2022


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Price ceilings are also supported by Spain, Belgium and other countries. On the contrary, Germany and Austria are reluctant to this measure. Other countries, such as France, support the separation of gas and electricity prices.

According to Italian Prime Minister Mario Draghi, European Union countries could set a ceiling for gas imported from Russia. But some critics point out that this measure could lead to a complete cut-off of Europe from Russian gas.

Another proposed solution included setting a ceiling for gas prices, with the understanding that individual governments of European countries would then pay the price difference to sellers. However, this proposal was criticized by Germany and the Netherlands. Such a measure, they say, would lead to subsidizing non-renewable energy with money that the government could otherwise use to support renewables.

Before Friday’s meeting of the Council of Ministers for Energy, as the Prime Minister of the country holding the EU presidency, I had a telephone conversation with the President of the EC @Ursula von der Leyen on the form of solution to high energy prices at the EU level. (1/2)

07:59 – 09/05/2022


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Potential pitfalls

Although these proposals represent potential solutions to the current crisis, they also have their pitfalls. One of the bigger ones is, for example, the possibility of losing the incentive to save gas, which many households and businesses are now trying to do, and which many governments are supporting. Thanks to this investigation, many countries have a guarantee that they will have large enough gas reserves for the winter months.

But if gas prices are reduced thanks to the cap, many people will lose this financial incentive and will use gas more often. However, its deliveries will not increase and the stock may therefore not be enough. As a result, according to critics, governments could introduce, for example, measures ensuring lower consumption.

Some analysts therefore rather recommend targeted financial support for people and businesses with low incomes, which are most affected by the crisis.

Other criticisms concern the response of energy companies to price ceilings. Critics fear that lower prices could lead to lower electricity production. Governments would therefore have to set energy prices in such a way that the measures do not lead these companies to regulate the production of electricity at a time when individual countries need it the most.

Katherine Vašíčková

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