The escalation by Russia of its pressure on EU energy supplies will see the union embark on an important first coordinated attempt collectively to manage energy supplies ahead of what promises to be a tough winter.
Russia has announced that its gas supplies to Europe via the Nord Stream 1 pipeline will not resume in full until the “collective west” lifts sanctions against Moscow over its invasion of Ukraine. At the same time, Moscow claim technical faults have caused the ongoing cuts in gas supplies, but they are widely seen as weaponising energy exports, an intensification of the Ukraine war by other means.
Wholesale electricity prices have skyrocketed because they are linked to the price of gas, whether or not the electric power is produced with gas or other means. Gas prices are now around 10 times higher than a year ago.
So when EU energy ministers meet on Friday they will consider proposals circulated by the commission and the Czech European Council presidency that would set “wholesale energy price caps” on gas, with a number of options put forward for how these would work. German and French support for a version of this plan looks likely to be important.
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The commission also proposes to levy some kind of windfall charge on profits generated by some electricity producers who are not using gas – and to redistribute those revenues to subsidise electricity for consumers and SMEs. These mechanisms are not straightforward and there will be debate about their impact on energy supply and investment. The crisis has – conversely – led to liquidity pressures on some energy companies, leading to discussions of state cash supports at the same time as windfall taxes.
Russia is still supplying gas to Europe via Soviet-era pipelines through Ukraine, open despite the invasion, as well as the South Stream pipeline via Turkey. A price cap on Russian gas – one Commission proposal – could reduce revenues to Moscow, though could lead it to further reduce supply.
It is likely to take a few weeks for an EU plan to emerge – though some proposals are likely to be agreed given the scale of the crisis. There remain significant disagreements, with central European governments urging the EU to release additional greenhouse gas emission allowances if the price rises above a certain threshold – a proposal the commission strongly opposes.
Ireland, meanwhile, will find itself affected not only by EU plans, but also potentially by UK proposals to intervene in its gas market, where the bulk of Irish gas is sourced. In navigating this the Government must balance three issues – price, securing ongoing supply and the need to boost investment in renewables. It will be a far from straightforward task.