EU plan may cap half of electricity costs

EU plans could cap the cost of about half of the Republic’s electricity supplies if the union delivers on reported proposals to curb energy inflation.

The European Commission is weighing plans to cap the wholesale cost of electricity generated by renewables and other non-gas sources at €200 a mega watt hour (MWh) in an effort to halt soaring prices, according to a draft of the plan seen by The Irish Times.

Such a move would limit the wholesale price of about half the electricity the Republic uses every year if the commission goes through with the plan.

Figures from national electricity grid operator Eirgrid show that close to half the electricity used in the State in 2021 was generated by coal, fuel oil, wind and other renewables, and other non-gas sources.

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Renewables alone accounted for 35 per cent of the total. Natural gas generated almost 46 per cent of electricity used here, while the balance, about 4 per cent, was imported from Britain.

Current EU rules peg wholesale electricity prices, including those in the Republic, to that of natural gas prices on world markets, which are 10 times higher than their average over the last decade.

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Prices on the Irish wholesale market change every half hour, but industry figures say they can surge past €400 per MWh – the unit in which power is sold – during periods of high demand, against €50 per MWh to €60 per MWh two years ago.

Regulators forecast that wind, which accounts for most Irish renewable electricity, will fetch an average wholesale price of €330 a MWh over the 12 months from October 1st, even though wind farms do not need to burn gas to generate power, and are profitable at prices of €72 to €75 a MWh.

European Commission president Ursula von der Leyen told journalists on Wednesday that the EU would cap the revenues of companies that are generating electricity at low costs.

‘Unexpected profits’

She was speaking ahead of the 27-member-state energy ministers meeting on Friday to consider sweeping EU-wide intervention on energy markets.

“We will propose to rechannel these unexpected profits… so that the member states can support the vulnerable households and vulnerable companies,” Dr von der Leyen said.

In addition, “we will propose a mandatory target for reducing electricity use at peak hours”, she added.

In the EU, gas and electricity plants are activated at peak times to cope with surges in demand, meaning that if usage is reduced at those moments, the use of expensive gas can be avoided.

The commission also proposes capping the price paid for Russian gas. The commission chief accused Russia of “actively manipulating the gas market” as well as being an unreliable supplier.

Russia supplies about 40 per cent of Europe’s natural gas, but its state energy company, Gazprom, has cut supplies through the Nord Stream 1 pipeline, connecting the country with Germany, claiming that parts of it need repair.

Dr von der Leyen described current electricity prices as “astronomic” and said that energy companies were earning profits they never expected and that were detached from the price of the producing of electricity.

The Financial Times reported earlier on Wednesday that it had seen draft EU proposals recommending that member states cap the price of electricity from producers such as wind farms, nuclear and coal plants, all of which are set by the high price of gas, at €200 a MWh.

Such a cap would mimic “the market outcomes that could be expected were global supply chains functioning normally and not subject to the weaponisation of energy through gas supply disruptions”, the commission document said.

Henning Gloystein, director of energy and climate at Eurasia Group, said a €200 MWh limit was “sufficiently high to achieve the intended demand reduction in Europe this winter, while giving industry and small consumers at least some assurance that coats won’t spiral up further”. – Additional reporting: Copyright The Financial Times 2022