President Ursula von der Leyen of the European Commission announced these proposals on Wednesday in her annual State of the Union, the European Speech from the Throne. Immediately afterwards they will be presented by the European Commissioners Frans Timmermans (Green Deal) and Kadri Simson (Energy). EU countries will discuss the bills at the end of this month with a view to adopting them immediately. Governments want to avoid mass social unrest and bankruptcies due to exploding energy bills.
The ‘solidarity contribution’ to be made by the gas and oil producers is based on their profits from the past three years, plus an additional profit margin of 20 percent. From December 1, 33 percent of all profits they make on top of that will be creamed off. The revenue from this levy is estimated at 20 to 30 billion euros. The Commission considers the levy justified because companies such as Shell and BP benefit from the increased energy prices.
The same applies to solar, wind, nuclear and water plants: their production costs have not increased, but they receive a top price for their energy because the increasingly expensive gas determines the final price of electricity. The Commission proposes to pay these non-gas-fired power stations a maximum of EUR 180 per megawatt hour. In recent weeks, the electricity price on the market has fluctuated between 300-400 euros per megawatt hour.
Maximizing the price for electricity from non-gas-fired power stations ultimately saves consumers and companies tens of billions of euros. Although the solar and wind energy producers simply receive the higher market price for electricity – the Commission does not want to tackle this market mechanism for the time being – they have to surrender everything they receive more than 180 euros per megawatt hour. That money is passed on to citizens and businesses.
In the Commission’s estimates, this is a redistribution operation of EUR 60 (conservative estimate) to EUR 117 billion. As with the proceeds of the solidarity contribution for fossil energy companies, the Member States determine how this money is distributed. The Netherlands wants to set up a special fund to help vulnerable groups of citizens and companies in particular.
These are temporary emergency measures, the Commission emphasizes. Skimming the profits and maximizing the price apply in principle for one year. It will then be considered whether an extension of the measures is necessary.
Member States must cut electricity demand by 10 percent
The emergency package also includes an obligation for member states to reduce peak electricity demand by 5 percent. As a result, less (expensive) gas is needed to generate the required electricity. Member States are also being asked to reduce total electricity consumption (including the share during peak hours) by 10 percent.
The Commission will not come forward with a proposal for a general price cap for gas until later. A large group of Member States, mainly southern, urged urgency, but the Commission fears (like the Netherlands and Germany) that such a price ceiling for gas will lead to energy shortages in Europe this winter. Commissioner Simson (Energy) warned last week that suppliers of LNG (liquefied gas) could divert to customers elsewhere in the world at a capped EU price. The EU now needs more LNG than ever to compensate for the loss of Russian gas.
Earlier, a price ceiling for Russian gas that comes to Europe via pipelines has already been shelved. Some Member States (Hungary, Slovakia), which are highly dependent on gas from Russia, fear that Moscow will turn off the gas tap completely with such a price ceiling. Russian President Vladimir Putin threatens to do so. The export of Russian gas to Europe has already fallen sharply since the invasion of Ukraine: previously 40 percent of European gas imports came from Russia, now it is about 9 percent. This gas flow is expected to be almost completely terminated next year.