Brussels proposes a new plan of measures to end energy dependence on Moscow and mitigate one of the continent's biggest price crises in recent decades

EU could intervene on gas prices to prevent electricity price hikes

photo_camera AP/MICHAEL SOHN - Pipelines of the landing facilities of the Nord Stream 2 pipeline in Lubmin, northern Germany

Gas supplies to the EU have historically been one of the most important energy security issues for the EU-27. However, with the outbreak of the Russian-Ukrainian conflict on 24 February, the problem of gas and oil dependence on Moscow has become a top priority. According to official figures, Russian gas imports to the EU account on average for more than 45% of total gas use, and oil imports for around 27%. However, this situation is not the same for all countries; while some, such as Spain, have more diversified suppliers, others - such as Germany, Italy and Poland - rely on Russian production for more than half of their consumption. 

In this context, the rise in the price of gas caused by the Kremlin's offensive has led to a chain increase in the prices of all goods, including electricity. Gas is one of the raw materials involved in electricity generation: around 10 per cent of all European gas is used for this purpose. Therefore, a new plan of measures proposed by the EU - called the 'REPowerEU Plan' - would limit the price of gas, and would have a direct impact on the wholesale electricity market, where historic prices of over 500 euros/MWh are being reached. This would avoid the contagion effect of rising commodity prices. 

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In fact, as evidenced by the windfall profits obtained by gas and oil companies - owners of the raw material - and which have little or nothing to do with the profits of electricity companies, this "domino effect" in the increase in the price of almost all goods arises precisely from the increase in the price of these hydrocarbons. 

In addition, the EU proposal also envisages the adoption of other exceptional measures, such as diversifying supply, reducing demand and increasing the production of renewable energies in the medium and long term. It also aims to reduce Moscow's gas dependence by two-thirds in less than a year, although this will require an increase in imports of liquefied natural gas and hydrogen. All of this with a view to 2030 when Brussels will be completely independent of Russian imports. 

Among the countries that could provide a commercial alternative to Russian gas imports are Norway, Qatar and Azerbaijan, although several analysts have warned that the reserves of these powers may not be sufficient to replace Russian hydrocarbons.

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"We must become independent of Russian oil, coal and gas. We simply cannot rely on a supplier that explicitly threatens us. We must act to mitigate the impact of rising energy prices, diversify gas supplies for next winter and accelerate the green transition," said a statement from European Commission President Ursula von der Leyen.

The main aims of the plan announced by Brussels are to accelerate the disconnection of Russian gas, in addition to mitigating one of the biggest price crises that European economies have had to face in recent decades, so that the European Commission could intervene in gas prices temporarily, as a solution to a market that has been considered "broken". Thus, considering the limit of 80 euros/MWh, prior to the Russian-Ukrainian conflict, the price of the wholesale electricity market could fall again to around 180 euros/MWh. This would lower the pool market by more than 300 euros. 

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This, in turn, would have consequences for the rest of the energy sector, as around 37% of electricity comes from fossil fuels - which, although cheaper and would save the EU around 400 billion euros, could jeopardise the climate target of a 55% reduction in CO2 emissions by 2030.

"The right response to the energy shock is total energy independence for Europe in the coming years," said the French finance minister, Bruno Le Maire, acknowledging that this will require "support" for the companies most exposed to rising prices and changes in the sector, as well as for the most vulnerable consumers. 

Finally, the 'REPowerEU plan' also includes a legislative initiative to establish EU gas reserves - currently at historically low levels - at 90% of their capacity on the first day of October each year. A proposal that implies a great deal of coordination and control of gas supplies based on the principle of solidarity between the EU-27. 

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