The European Union is preparing an “emergency intervention” in its energy market to drive down ballooning power prices, European Commission president Ursula von der Leyen said on Monday.
“The skyrocketing electricity prices are now exposing the limitations of our current electricity market design. It was developed for different circumstances,” she said in a speech at the Bled Strategic Summit in Slovenia.
“That’s why we are now working on an emergency intervention and a structural reform of the electricity market.”
Ministers from the 27 member states are to come together for an extraordinary energy council next week to address the surge in energy prices, which have increased 10-fold in a year.
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The spiralling energy costs are the leading factor in rising inflation, piling pressure on households and businesses and leading to growing calls for energy price caps amid fears of social unrest.
“We must fix the energy market,” wrote Czech industry and trade minister Jozef Síkela, as he announced the emergency energy council convened by the Czech presidency of the EU. A solution found by all 27 member states would be “by far the best we have”.
The details of a potential reform of the EU’s energy market are currently unclear. European Commission officials are developing proposals to put before member states for their consideration later this week.
Germany and Austria are among the countries to support decoupling the cost of gas from wholesale electricity prices.
Currently, the price of gas sets the minimum cost of energy in the EU’s wholesale electricity market through a marginal pricing system.
At the time of the system’s design, gas was considered a cheap and reliable fuel that would act as a fail-safe whenever electricity from renewable sources was insufficient.
But the steep rise in gas prices since Russia began preparing its invasion of Ukraine and the threats from Moscow to cut gas supplies to EU member states have revealed the risks of using the fuel as a benchmark.
To cope with the soaring energy prices, EU member states have rolled out a series of national interventions including subsidies and tax cuts to help households and businesses.
The EU also agreed a voluntary target to cut national gas use by 15 per cent to reduce demand, with members such as Germany and Spain proposing measures such as setting limits on air conditioning temperatures and reducing the outdoor lighting of buildings to cut usage.
But as winter approaches with its greater demand for home heating and energy use, an increasing number of countries have backed calls for EU-level intervention in how the market works.
On Monday the Belgian government indicated it would support a cap on energy prices on Monday, the latest in a series of countries to do so.
