Annexes to COM(2023)302 - Review of emergency interventions to address high energy prices in accordance with Council Regulation (EU) 2022/1854 - Main contents
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| dossier | COM(2023)302 - Review of emergency interventions to address high energy prices in accordance with Council Regulation (EU) 2022/1854. |
|---|---|
| document | COM(2023)302 |
| date | June 5, 2023 |
A potential prolongation of the measure would hinder one of the objectives set out in the electricity market design proposal, namely to incentivize the uptake of PPAs and ensure as liquid a PPA market as possible. PPAs are instruments that provide long-term price stability for the off-taker and the necessary certainty for the producer to take the investment decision. Nevertheless, only a handful of Member States have active PPA markets and buyers are typically limited to large companies, not least because PPAs face a set of barriers, in particular the difficulty to cover the risk of payment default from the buyer in these long-term agreements. Hence, according to the proposal, Member States should take into consideration the need to create a dynamic PPA market when setting the policies to achieve the energy decarbonisation objectives set out in their integrated national energy and climate plans. To address the risks related to creditworthiness, the proposal sets out that Member States should ensure that instruments to reduce the financial risk associated to off-taker payment default, including guarantee schemes at market prices, are accessible to companies that face entry barriers to the PPA market and are not in financial difficulty. The proposal includes additional requirements aiming to encourage the growth of the market for such agreements.
In addition, the different ways in which Member States have implemented the revenue cap have created significant regulatory uncertainty, which, in turn, pose risks to the development of new investments, particularly in renewable sources, necessary to achieve the EU’s objectives. In particular, the reported difficulties in some Member States that relate to the conclusion of long-term contracts, including PPAs, as a result of the implementation of the revenue cap could create an additional layer of investor uncertainty and hinder the attractiveness and stakeholder confidence in forward markets. The above-mentioned risks may ultimately undermine the establishment of an attractive investment environment for renewable and low carbon generation targeted by the electricity market design proposal and, ultimately, the energy transition.
Finally, the public consultation included questions on a possible prolongation of the inframarginal revenue cap. Most of the respondents were against it because of the following risks and challenges such prolongation of the measure would entail:
- the heterogeneous implementation of the inframarginal revenue cap across Member States appears to have created uncertainty for investors and has been reported as a disincentive for new investments;
- the measure is difficult to implement, and its administrative costs are high when compared with its benefits;
- when the inframarginal revenue cap is set at a low level, as some Member States have opted for, generators may be inclined to reduce their production while the cap is in place;
- consumer protection can be secured without interfering with the electricity market design, for example, through the adoption of targeted social policies.
Only a minority of respondents supported the prolongation of the inframarginal revenue cap, either as set out in the Council Regulation or with slight modifications. Those respondents largely based their input on the benefits of the measure to final consumers.
Considering the information currently available to the Commission, as set out above, the Commission does not recommend the prolongation of the Council Regulation with respect to the inframarginal revenue cap.
The Commission notes that to mitigate the impact of high energy prices on consumers’ bills, it has proposed in its electricity market reform to promote the development of long-term markets so that the revenues of the inframarginal generators and the prices paid by final consumers are less determined by the volatile short-term wholesale electricity market price. Based on the Commission’s proposal, these revenues and prices will be shaped mostly by reference to long-term contracts, such as PPAs and so-called two-way contracts for difference, depending on whether the installation was privately or publicly funded. In the case of contracts for difference, they will generate a pay-out when market prices become high. The proposal sets that this payout will have to be used by Member States to directly lower the electricity bills of all electricity customers (including companies and industry), having thus a similar effect as that of an inframarginal revenue cap, but without creating investor uncertainty.
VI. Support for final consumers
Section 3 of Chapter II of Council Regulation is addressed to the retail market and allows Member States to temporary extend public intervention in price setting for the supply of electricity to small and medium enterprises (SME) (Article 12) and for both households and SMEs exceptionally and temporarily set retail prices below costs (Article 13).
Public intervention in price setting for households existed before the crisis in eleven countries, namely Belgium, Bulgaria, France, Greece, Hungary, Italy, Lithuania, Poland, Portugal, Romania and Slovakia 22 in the form of regulated prices or social tariffs. During the crisis seven additional Member States introduced price regulation for households, namely Croatia, Czechia, Estonia, Finland, Luxembourg, the Netherlands and Slovenia.
Out of 25 assessments received, 12 Member States reported making use of the measures in the Council regulation. 4 Member States, namely Czechia, Estonia, Slovenia and Poland, reported having introduced regulated retail prices for SMEs under Article 12 of the Council Regulation. Additionally, France and Slovakia, who have regulated prices for households, reported compensation schemes for SMEs, in line with the Temporary Crisis and Transition framework (TCTF)23 under State aid rules. The Netherlands intervened in price setting to ensure below cost electricity prices for households and businesses. This scheme was notified to the Commission and approved under the applicable State aid framework.24
Although Article 13 point (c) of the Council Regulation requires Member States to compensate suppliers for the cost of supplying electricity below cost, Member States did not include specific information on this point in their reports.
Additionally, some Member States mentioned other types of intervention towards SMEs. For example, Portugal mentioned the reduction of network tariffs as a price intervention tailored to SMEs. Denmark, Latvia and Sweden established different price setting interventions for different groups of consumers (actions on tax, levies, rebates, compensation schemes, etc.). Germany implemented an economy-wide scheme compensating increased electricity costs to undertakings, without however affecting the freedom of suppliers to act on the market.25
Articles 12 and 13 also require that any public intervention in the retail market should preserve an incentive to reduce electricity demand. In this regard, several Member States, such as Austria, Germany, Croatia, the Netherlands and Romania, reported schemes based on consumption ceilings, including interventions in price setting or direct or indirect compensation schemes to final consumers.
There are significant downsides to regulated prices. In particular, they can reduce energy efficiency incentives and undermine competition to the long-term detriment of consumers. These concerns underline the importance of the rules applicable in the Electricity Directive 2019/944, which the Council Regulation derogates from.
Assessment on prolongation of the measure
The crisis measure affording Member States the possibility to cap prices for households and SMEs has clearly proved of use as several Member States have taken the opportunity to extend existing schemes or to create new ones in very short timelines.
In the market design reform proposal, the Commission proposed new provisions similar to those in the Council Regulation, following an assessment of the advantages and disadvantages of the retail measures that had been reported by Member States, the results of the public consultation and in view of its fiscal policy guidance to Member States for 202426 More specifically, the Commission proposed that Member States may introduce, during an electricity price crisis, targeted price intervention for households and SMEs, including at below cost levels, for a limited volume of electricity consumption, and for a limited period of time.
This possibility comes in addition to the existing protection framework for energy poor and vulnerable consumers provided for in the Electricity Directive, under which Member States may apply social tariffs to energy poor and vulnerable consumers and temporarily regulate retail prices for households and microenterprises until market competition is fully established.
As the measure, in substance, has been included in the Commission market design proposal, and taking into consideration the information currently available to the Commission, as set out above, the Commission does not see a current need to prolong the measure at this stage.
VII. Preliminary conclusions
This Report presented an overview of the responses received by Member States on (i) their demand reduction measures; (ii) the implementation of the inframarginal revenue cap; and (iii) retail price setting interventions set out in Chapter II of the Council Regulation. The Report also presented an overview of the input submitted by the respondents to the public consultation on the same topics. The information assessed in this Report and the conditions in the electricity supply and prices in the EU currently and as foreseeable under normal circumstances, do not provide evidence that a prolongation of each of the demand reduction measures, the inframarginal revenue cap and retail interventions would be necessary or advisable.
First, with respect to demand reduction measures, all reporting Member States appear to have implemented measures to reduce electricity demand, mainly through awareness raising campaigns and energy saving targeted measures. While Member States report that they are overall respecting the binding target of reducing electricity consumption by 5% at peak hours, it would seem that the reduction of the monthly gross electricity consumption by 10% presented challenges but this did not hinder the observed reduction in electricity prices.
Based on the information available, the Commission does not see a current need to prolong the demand reduction measures set out in the Council Regulation. Barring unforeseeable changes, the current electricity market conditions do not render such prolongation necessary. This is also in line with the feedback received from most respondents to the public consultation. While no longer necessary in the short term and through the tools established by the Council Regulation, demand response is important for well-functioning electricity markets. For this reason, the Commission has introduced it structurally in its electricity market design proposal.
Second, the review found that implementation of the revenue cap varies greatly across Member States. Diverging implementation strategies across Member States have reportedly led to significant investor uncertainty. This is compounded by the fact that in certain Member States the implementation of the cap has reportedly impacted the conclusion of PPAs and other long-term contracts.
Based on the information available, and given the current and foreseeable market conditions, the Commission considers that the benefits of the current inframarginal revenue cap would not outweigh the impact on investor certainty and the risks to the market functioning and the transition. The challenges in the implementation process also discourage a prolongation of the inframarginal revenue cap set out in the Council Regulation. The Commission’s conclusion is in line with the feedback received from most respondents to the public consultation, who opposed a prolongation of the measure due to the investor uncertainty concerns.
Third, the review found that several Member States took advantage of the possibility to widen the scope of retail price regulation in times of crisis to SMEs and apply price regulation below costs under certain conditions. In its electricity market design proposal the Commission included equivalent provisions which allow Member States to exceptionally and temporarily intervene in retail markets by setting a price below costs for both households and SMEs during possible future crisis situations. The adoption of the electricity market design proposal would ensure that such structural measures would be part of the EU regulatory framework, as soon as the adoption of the proposal takes place. In view of the above and against the background of current and expected electricity supply and price conditions, the Commission therefore considers that it is not necessary to prolong the provisions of Articles 12 and 13 of the Council Regulation.
Finally, given that this Report is based on information submitted by Member States only a few months following the entry into force of the Council Regulation measures, the Commission’s conclusions are therefore without prejudice to any additional information the Commission may receive from Member States or any unforeseen changes of the general situation of electricity supply and prices in the EU. Should the information on which the Commission has based this Report significantly change, the Commission may need to adjust its conclusions accordingly or act swiftly in case the state of the market so requires.
1 Council Regulation (EU) 2022/1854 on an emergency intervention to address high energy prices.
2 Communication from the Commission to the European Parliament, the European Council, the Council, the European Economic and Social Committee and the Committee of the Regions - Tackling rising energy prices: a toolbox for action and support, COM(2021) 660 final.
3REPowerEU: Joint European Action for more affordable, secure and sustainable energy, COM(2022) 108 final.
4 REPowerEU Plan, COM/2022/230 final.
5 Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions - Short-Term Energy Market Interventions and Long Term Improvements to the Electricity Market Design – a course for action, COM(2022) 236 final.
6 In so far as State resources are involved, such measures may be subject to State Aid control.
7 The measure which introduced the indicative target continues to apply until the end of December 2023.
8 Proposal for a Regulation of the European Parliament and of the Council amending Regulations (EU) 2019/943 and (EU) 2019/942 as well as Directives (EU) 2018/2001 and (EU) 2019/944 to improve the Union’s electricity market design.
9 The Commission received 1369 replies; more than 700 of those have come from citizens, around 450 from businesses and business associations, around 40 from national or local administrations or from national regulators and around 70 from network operators. Also, around 20 energy communities, 15 trade unions and 20 consumers organisations participated. A significant number of NGOs, think tanks and research or other academic organisations submitted responses as well.
10 Hungary and Romania.
11 In August 2022, TTF day-ahead and month-ahead prices were above 230 EUR/MWh.
12 Council Regulation (EU) 2022/2576 of 19 December 2022 enhancing solidarity through better coordination of gas purchases, reliable price benchmarks and exchanges of gas across borders, Council Regulation (EU) 2022/1369 of 5 August 2022 on coordinated demand-reduction measures for gas and Council Regulation (EU) 2023/706 of 30 March 2023 amending Regulation (EU) 2022/1369 as regards prolonging the demand-reduction period for demand-reduction measures for gas and reinforcing the reporting and monitoring of their implementation.
13 The EU has reduced its natural gas demand by 19.2% or 41.5 bcm from August 2022 to January 2023, compared to the average of the previous five years. It has thus so far exceeded its target of 15%, which would correspond to 32.5 bcm for the same period. Moreover, it has already achieved more than 90% of its overall target of just over 45 bcm reduction for the entire period of August 2022 to March 2023.
14 Some Member States, namely Italy, Portugal, Slovenia and Spain have introduced or consider introducing a competitive bidding process to achieve reduction in electricity demand.
15 Cyprus, Croatia, Poland and Portugal declared the lowest levels of reduction of electricity consumption achieved.
16 As defined in Article 2 point (3) of the Council Regulation. Germany, Finland, France, Greece and Spain reported the highest levels of reduction of electricity consumption achieved. When calculating the reduction of gross electricity consumptions, some reporting Member States appear to have applied Article 3(2) of the Council Regulation, while others have not. Article 3(2) gives Member States the possibility to take account of the increased gross electricity consumption that follows from reaching the gas demand reduction targets and general electrification efforts to phase out fossil fuels in their respective calculations of reductions of gross electricity consumption. As a result, any comparisons of such calculations across various Member States should be carried out with caution.
17 https://www.acer.europa.eu/news-and-events/news/acer-submitted-framework-guideline-demand-response-european-commission-first-step-towards-binding-eu-rules
18 The following Member States have reported a cap below 180 EUR/MWh at least for one technology: Austria, Belgium, Bulgaria, Czech Republic, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Poland, Slovakia. Spain introduced a market revenue cap on certain technologies already in September 2021. The measure, which is projected to last until the end of 2023, currently applies a cap at around 67 EUR/MWh. In June 2022, Spain and Portugal implemented a mechanism aimed at reducing the wholesale electricity prices in the Iberian market which reduces the impact of the market revenue cap. The mechanism was approved by the Commission on 8 June 2022 under the case numbers SA. 102454 and SA. 102569 and recently prolonged until the end of 2023 under the case numbers SA. 106095 and SA. 106096.
19 The following Member States started to apply the inframarginal revenue cap before 1 December 2022: Belgium (1/8/2022); Cyprus (24/6/2022); France (1/7/2022); Greece (8/7/2022); Italy (February 2022 for some renewable generators) and Portugal and Spain (June 2022).
20 In Austria, Czech Republic, Finland, France, Luxembourg, Poland, Portugal, Slovenia and Spain the inframarginal revenue cap or similar measures will be applied until 31 December 2023. In Cyprus the end of the measure will be based on a decision issued by the regulator. In Slovakia the measure will be in place until 31 December 2024. Additionally, in Germany the period of application can be extended until 30 April 2024.
21 To ensure the security of supply, Article 8(1)(b) of the Council Regulation allows Member States to set a higher cap on market revenues for producers that would otherwise be subject to the Union-wide cap on market revenues, when their investment and operating costs are higher than the Union-wide cap on market revenues. 13 Member States have incorporated this possibility in their national implementation of the inframarginal revenue cap, in particular for lignite, biomass and oil generation plants.
22 Based on information received from Member States, reports from National Regulatory Authorities and measures self-assessed by Member States.
23 Communication from the Commission Temporary Crisis and Transition Framework for State Aid measures to support the economy following the aggression against Ukraine by Russia, 2023/C 101/03.
24 SA.106377 TCTF - Netherlands - Scheme for the reduction of energy costs.
25 The scheme was approved by the Commission under State aid rules, in line with the TCTF. SA.104606 TCTF - Germany - Temporary cost containment of natural gas, heat and electricity price increases (JOCE C/061/2023).
26 “Member States should phase out energy support measures, starting with the least targeted ones. If an extension of support measures would be necessary because of renewed energy pressures, Member States should target their measures much better than in the past, refraining from generalised support and only protecting those who need it, namely vulnerable households and firms”, COM(2023) 141 Fiscal policy guidance for 2024.
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