EU regulator cautions against repeating emergency energy measures

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The European Union’s energy regulator has emphasized the need to avoid ineffective measures taken by governments to curb rising energy prices. It warns that such measures could inadvertently increase reliance on fossil fuels and send the wrong message to investors. Instead, targeted reforms are recommended to create a stable electricity market capable of handling future supply shocks and the growth of renewable energy.

The proposed reforms, introduced by the European Commission, have sparked a debate between France and Germany. The key point of contention is whether state subsidies should be allowed for existing power producers, such as France’s nuclear power stations.

Acer, the EU’s energy watchdog, recently published a report highlighting the potential drawbacks of broad subsidies used to protect consumers from high wholesale energy prices. These subsidies may lead to overall energy inefficiency and interfere with consumers’ ability to reduce electricity usage through market signals. Acer also points out that subsidizing bills to dampen prices can impact energy security by increasing resource consumption.

“Member states face trade-offs in their choice of support measures in times of crisis, and beyond. It is important to strike the right balance between cushioning retail prices and preserving incentives to reduce demand,” commented Christian Zinglersen, Acer’s director.

According to Bruegel, a think-tank, EU countries collectively spent €646 billion on emergency energy measures in 2022. This funding was allocated to price caps, energy-saving initiatives, and exploring alternative fuels. The steepest price hikes affected industrial consumers in Lithuania, Latvia, and Hungary, while Germany and France managed to mitigate costs through the use of fiscal measures.

Acer emphasizes the need for the EU to address the challenges posed by decarbonization requirements and ensuring affordable energy supply security.

In a meeting with EU ministers in Valladolid, Spain, Zinglersen discussed the resilience of the bloc’s electricity grids. The increasing integration of renewable power generators raises concerns about grid capacity. The intermittent nature of weather-dependent generation poses challenges for grid infrastructure and the integration of more wind and solar installations.

This week, several EU countries experienced sudden price volatility in the electricity market. High demand and low wind led to spot electricity prices hitting €200 per megawatt hour in the Czech Republic, while Germany and the Netherlands faced negative prices due to excessive solar production overwhelming the grid.

The European Commission’s proposal for electricity market reform aims to minimize the impact of unexpected surges on consumers. However, the reform has encountered obstacles due to disagreement between France and Germany. Germany opposes France’s ability to subsidize its nuclear industry and benefit from low domestic power prices, as it could disrupt the internal market of the EU.

While Spain, holding the rotating chair of the EU member states, proposed a compromise in Valladolid, Germany’s state secretary of economics affairs and climate action ministry, Sven Giegold, acknowledged the warm welcome but stated that there is still a long way to go to achieve a broad compromise.