EUROPEAN COMMISSION Brussels, 23.3.2022 COM(2022) 138 final 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 Security of supply and affordable energy prices:













Options for immediate measures and preparing for next winter

































































INTRODUCTION Over the last 12 months, the retail prices of natural gas and electricity have been rising by respectively 65% and 30%. Russia’s invasion of Ukraine is adding supply concerns to this difficult situation and has exacerbated the price volatility. High-energy prices are feeding inflation and hurting Europe’s economy and impacting its recovery from the COVID-19 crisis. As part of the response to this exceptional situation, in October 2021, the European Commission adopted a toolbox for action and support to mitigate the effects on consumers and businesses at the EU- and Member States levels. Targeted support measures to help reduce energy costs for consumers, households and industries, have helped alleviating the pressure. On 8 March 2022, the Commission’s REPowerEU Communication provided further guidance to Member States on how to mitigate the increase in electricity prices for households and businesses, and on how to use high profits earned by some electricity producers to finance these measures. To ensure a more sustainable energy system, the Commission will propose in May a plan to phase out Europe’s fossil fuel dependence from Russia while increasing the resilience of the EU-wide energy system. In Versailles on 10-11 March 2022, EU leaders agreed to phase out the EU dependency on Russian gas, oil and coal imports as soon as possible and invited the Commission to put forward a plan to ensure security of supply and affordable energy prices during the next winter season by end of March. In parallel, the EU leaders committed to urgently address and consider concrete options, building on the Communication of 8 March 2022, for dealing with the impact of increased energy prices on our citizens and business, especially our vulnerable citizens and SMEs, including at the next meeting of the European Council on 24-25 March 2022. This Communication responds to the Leaders’ call. It presents the benefits and drawbacks of concrete exceptional short-term options to temper price spikes. It also proposes collective European actions to address the root causes of the problem in the gas market with a view to ensure security of supply at reasonable prices for next winter and beyond. To this end, EU partnerships with third countries would allow collective purchases of gas and hydrogen. Finallya proposal for a European gas storage policy aims at improving the resilience of the EU-wide energy system. OPTIONS TO ADDRESS HIGH ELECTRICITY PRICES IMPACTS ON CITIZENS AND BUSINESS Several options for emergency measures to limit the impact of high electricity prices have been put forward by Member States, stakeholders and in the academic debate. They aim at providing relief to end-consumers, while not distorting the longer term overarching Green Deal, including decarbonisation and energy efficiency, objectives. To be successful, these temporary and targeted exceptional options need to be fiscally manageable and should not compromise security of supply and level playing field in the internal market. The short-term options on the electricity price can be broadly grouped in two categories: Intervention options including financial compensation These options aim at lowering electricity prices, either directly on the retail side or indirectly on the wholesale market. Retail side These options aims at cushioning the effects of the high prices on end-consumers while letting the European electricity and gas markets set the price at wholesale level. In line with the Commission’s October toolbox, 26 Member States have introduced such crisis measures. Within these measures, direct support to vulnerable end-users targets the aid to those most in need and State aid can help businesses struggling with excessive energy prices. The latter will be supported by the new State Aid Temporary Crisis Framework, adopted on 22 March, enabling support for undertakings directly or indirectly affected in the form of limited direct grants, liquidity support and aid for increased gas and electricity costs. A majority of Member States have put in place reduced VAT rates for gas, electricity and/or district heating. However, many possibilities, notably in the framework of the Energy Taxation Directive, including reduced rates or exemptions for households, are not yet fully exploited. The Commission considers providing guidance to Member States on how to make best use of the legal framework, including on targeted country-specific derogations under the Energy Taxation Directive so as to avoid distortions to the Single Market.

All the options on the retail side aim at providing direct relief to citizens and businesses. Using higher revenues from energy tax and carbon pricing or from abnormal profits of some energy companies can help finance such targeted and temporary measures in support of vulnerable households and businesses. Wholesale side Member States can consider setting up an aggregator model under which an entity would buy electricity on favourable commercial terms and make it available to certain consumer categories below market price passing onwards the advantages to the consumers, essentially subsidising the difference between lower retail prices and higher wholesale ones. Other options would involve intervening directly in the functioning of the wholesale electricity markets. These consist in either compensating financially fossil-based electricity generators for part of their extraordinary high fuel costs so that they reduce their offered price in the wholesale market or in directly capping the electricity price in the wholesale market by establishing a reference benchmark and compensating the difference with the offered price. Such options would aim at reducing the negative impact of very high gas prices in the wholesale electricity market. Their main drawbacks relate to their fiscal cost, potential distortion of competition, risks to cross-border trade and hence security of electricity supply,the extent of which depends on the design of such options. Regulatory options without fiscal compensation These options consist in establishing a regulatory cap for the maximum price that certain baseload generators can charge. Whilst this option would bring the costs down in the longer term, its added value in the short term is to address the excessive profits of certain technologies. The main drawbacks of these options are related to implementation challenges as they would require access to information on cost and revenues for the generators that might not be accessible to public entities and possible legal challenges. They would also induce regulatory uncertainty, as such options may remove some incentives for private investments in renewables which are key to achieving our long-term goals of a resilient, sustainable and secure energy system. All options are presented and analysed in more detail in the Annex. Based on this assessment, the Commission considers that there is no single easy answer to tackle the high electricity prices given the diversity of situations among Member States. Some options are only suitable for specific national contexts. At the same time, some interventions would require an EU- legislation and/or EU level common approach to be effective and not harmful for the internal market and supply security. They all carry costs and drawbacks, including for the functioning of the single market. ENSURING SUPPLY OF GAS at REASONABLE COST FOR NEXT WINTER and beyond While many options put forward in the public debate address the symptoms, the root cause of the current high electricity prices is the gas market. Today’s high electricity price is driven by the high gas price, as gas-based generators are still often the energy providers coming last into the electricity market to close on actual demand. In the gas spot market, volatility is high and not fully linked to fundamentals. Capping or modulating the gas price through regulatory means is an option that may be considered, as it would have an immediate impact on price levels. It can give an important signal that the EU will not pay any price for gas but such an intervention should only be envisaged as last resort, as it entails some drawbacks in terms of security of supply of gas flows. With the gas replenishing season starting now, it is urgent to agree on a common strategy. The current context of high prices and tight gas markets makes the refilling of storage for the next winter more challenging that in normal years. Using the collective leverage of the Union to help secure gas imports in the best possible conditions is essential to avoid Member States bidding against each other for the same supplies. The EU is stronger when acting together. The EU should act jointly to harness its market power through negotiated partnerships with suppliers. The Commission stands ready to create a Task Force on common gas purchases at EU level. By pooling demand, the Task Force would facilitate and strengthen EU’s international outreach to suppliers of LNG and of gas, with the view to secure well-priced LNG and gas imports ahead of next winter. The EU can better ensure LNG, gas and hydrogen at affordable prices from third countries in the short term, if it engages with those countries on the long term, setting up long-term renewable gas partnerships which would also lay the basis for future hydrogen imports Thus, the Task Force will prepare the ground for energy partnerships with key suppliers of LNG, gas and hydrogen in the Mediterranean region, with our partners in Africa, but also the Middle East and USA. The Task Force would be supported by Member States representatives in a Steering Board. A joint negotiation team led by the Commission would hold talks with gas suppliers. It would be inspired by the experience from the COVID-19 pandemic, where EU wide action was crucial to guarantee sufficient supplies of vaccines for all.