EU to jointly purchase electricity and gas

style="float: right; margin-bottom: 10px; font-weight: 600;"Sat 2nd Oct, 2021

There is no end to the soaring energy prices. In European wholesale, a megawatt hour of gas cost more than 90 euros at the weekend. That is a doubling within five weeks. Since gas is used to generate not only heat but also electricity, wholesale prices for electricity have also risen significantly.

One of the reasons is that demand for gas is high as a result of the global economic upturn and the world market price for hard coal has also risen. Power plant operators also have to factor in the significant rise in the cost of CO2 allowances. At the same time, comparatively little wind power has been produced recently due to prolonged lulls.

However, many traders no longer dare to say whether the price jumps to this extent can still be fundamentally explained. There is already talk of "madness" on the energy markets. With winter on the horizon, more and more governments are trying to protect their citizens and businesses from an avalanche of costs.

In Spain, the cabinet of Prime Minister Pedro Sánchez has halved the VAT on electricity. Contracts with long-term fixed prices per kilowatt hour, as in Germany, are unusual there, so high wholesale prices are passed on directly to end consumers. They are also to be relieved by a suspended production tax and reduced energy tax.

In France, too, where the experience with the "yellow vests" is deep-seated and presidential elections are due in the spring, action is being forced. The 12.6 percent increase in regulated gas tariffs on October 1 will be the last for the time being, Prime Minister Jean Castex announced on Thursday evening. Until April, the heating costs for French are now no longer allowed to rise.

In the expectation that the gas price in the wholesale trade will then fall again at the end of the heating season, the costs for consumers are thus to be smoothed. Smoothing, in turn, means that there can be no question of a gift to households, analyzes the French daily Le Figaro, but only of a deferred payment. This is another reason why there has been a lot of criticism from the ranks of the opposition and the trade unions.

Prime Minister Castex sees a legal basis for market intervention in view of the extraordinary price increases. There is also to be a "tariff brake" for the price of household electricity, which, according to the government's plans, may not increase by the end of the year and only by a maximum of 4 percent by the spring.

Among other things, this is to be made possible by a reduction in the electricity tax, which will reportedly cost the state around 4 billion euros. In addition, aid is planned for gas suppliers and so-called "energy checks" for the approximately six million households in France with low incomes. Until now, there had been talk of 100 euros each. Italy and the Netherlands have responded to the high prices with similar subsidies.

At the same time, France's Finance and Economy Minister Bruno Le Maire is demanding that the EU states coordinate their response to the increased energy prices. In a letter dated Thursday to the chairman of the Eurogroup, Ireland's Finance Minister Paschal Donohoe, Le Maire writes that the EU states must bundle their "unilateral" efforts that have been made so far.

The EU Commission should present proposals for this, he said, and the Eurogroup must discuss them at its meeting on Monday. So far, the states have taken their own measures "without consultation at the European level," Le Maire criticized. His letter has been made available to the F.A.Z. He demanded that the Commission list all the individual reactions of the member states to the increased energy prices and, based on that, present proposals for a coordinated response.

This is what the EU authority intends to do shortly anyway. It should be a "toolbox" of different instruments, the Commission said on Friday. A spokesman left open which of the ideas circulating in the member states might be included. EU Council President Charles Michel put the issue on the agenda of the EU summit in Brussels in three weeks.

Spain and Italy have put into play the idea of EU countries entering into joint supply contracts with energy suppliers, similar to the procurement of Covid vaccine. Greece proposes another EU fund to finance energy purchases. Germany opposes that. Le Maire wrote that in the short term, "further steps" should not be ruled out. In the medium term, he said, it must be ensured that his country can base its energy supply primarily on nuclear energy. This, he said, must be classified as a sustainable energy source in the so-called EU taxonomy. In the long term, he said, the EU must become independent of all external suppliers. Le Maire rejects tax breaks on energy products.

Photo by Jose M. Alarcan


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