Consumer protection mechanisms during the current and future periods of high and volatile energy prices
Date: 2022-06-02
Institutions: European University Institute
Subjects: European Commission, consumer protection, energy policy, energy supply, gas supply, price regulations

POLICY BRIEF

Consumer protection 
mechanisms during the current 
and future periods of high and 
volatile energy prices

Highlights

The  recent  surge  in  energy  prices  has  prompted  many  govern-
ments to introduce emergency measures to reduce the impact on 
consumers’ electricity and gas bills.

In its REPowerEU Communication of 8 March 2022, the European 
Commission confirmed that price regulation can be used to mitigate 
the effect of higher energy prices on consumers’ bills. However, 
most government interventions and what the Commission refers 
to are measures to reduce the energy prices facing consumers. 
This  type  of  measures  weakens  the  incentives  to  save  energy, 
and  therefore  runs  counter  to  the  more  general  energy  policy 
objectives  of  sustainability  and  security  of  supply,  including  the 
reduction of the European Union’s dependence on Russia.

In this Policy Brief, a more targeted approach, based on lump-sum 
rebate  payments,  which  protects  energy-poor  consumers  from 
unaffordable energy bills, while maintaining the incentives to save 
energy, is proposed.

Alberto Pototschnig; Jean-Michel Glachant; Leonardo Meeus; Ilaria Conti; FSR, RSC, EUI

Issue 2022/20
March 2022

POLICY BRIEFAuthors1. Introduction

The sudden surge in energy prices since the autumn 
of  2021,  recently  exacerbated  by  the  uncertainty 
created by the invasion of Ukraine by the Russian 
Federation army, has prompted many governments 
to introduce a range of emergency measures to curb 
the  effects  of  higher  energy  prices  on  consumers’ 
electricity and gas bills.

These  measures  have  ranged  from  reductions  in 
taxes and other levies charged on energy bills (as, 
for example, in Belgium, Germany, Italy and Spain), 
to the imposition of price caps or price freezes (as, 
for  example,  in  France),  to  lump-sum  payments 
to  consumers  (as,  for  example,  in  Belgium  and 
Great  Britain).  Taxes  on  windfall  profits  were  also 
introduced in some Member States (for example, in 
Italy  and  Spain),  partly  to  finance  the  above-men-
tioned measures.

In  October  2021, 
the  European  Commission 
proposed  a  “toolbox  for  action  and  support’1, 
outlining a set of measures which the Commission 
itself  and  Member  States  could  adopt  to  deal 
with  the  current  high-price  situation.  Many  of 
these  measures  aimed  at  mitigating  the  impact  of 
higher  energy  prices  on  industry,  businesses  and 
households, especially vulnerable ones.

2. Price regulation in the REPowerEU 
Communication

In  its  Communication  REPowerEU  of  8  March 
20222, the European Commission confirmed that, in 
order to mitigate the effect of higher energy prices 
on  consumers’  bills,  “price  regulation  and  transfer 
mechanisms  to  help  protect  consumers  and  our 

economy  are  possible”.  The  same  Communica-
tion provides, in Annex 1, detailed Guidance on the 
application  of  Article  5  (on  market-based  supply 
prices)  of  Directive  (EU)  2019/9443  in  the  current 
situation.  Such  a  Guidance  concedes  that  “the 
current situation on energy markets is such that in-
tervention in retail price setting may be necessary 
for  Member  States  to  meet  their  policy  objectives 
and  ensure  affordable  transparent  energy  prices 
and costs for consumers”.

In  the  Guidance,  the  Commission  also  highlights 
that  various  provisions  in  the  above-mentioned 
Article 5 envisage the possibility of derogating from 
the  principle  of  market-based  supply  prices,  in 
particular for the purpose of:

•  ensuring  that  vulnerable  household  customers 
can  afford  to  meet  their  basic  energy  needs 
(Article  5(3),  subject  to  specific  conditions  set 
out in Article 5(4)); 

• 

facilitating the transition to effective competition 
between  suppliers  in  the  case  of  households 
and  micro-enterprises  (Article  5(6),  subject  to 
the  more  specific  conditions  set  out  in  Article 
5(7)4).

Recital  23  of  Directive  (EU)  2019/944,  which 
spells out the objective of Article 5, shows that the 
provisions in this article may be used to address the 
impact of situations of particularly high prices5. 

It is however imperative that the goal of protecting 
vulnerable  consumers  is  pursued  in  a  way  which 
is  consistent  with  the  other  objectives  of  energy 
policy,  which  include  efficiency,  sustainability  and 
security of supply. The sustainability objective has 
been  spelt  out  in  terms  of  increasingly  ambitious 

1  Communication  from  the  Commission  to  the  European  Parliament,  the  European  Council,  the  Council,  the  European  Economic  and  So-
cial  Committee  and  the  Committee  of  the  Regions,  Tackling  rising  energy  prices:  a  toolbox  for  action  and  support,  Brussels  13.10.2021, 
COM(2021) 660 final.

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, REPowerEU: Joint European Action for more affordable, secure and sustainable energy, Stras-
bourg, 8.3.2022, COM(2022) 108 final.

3  Directive (EU) 2019/944 of the European Parliament and of the Council of 5 June 2019 on common rules for the internal market for electricity 

and amending Directive 2012/27/EU.

4  These conditions are different from those applicable to regulated retail prices for energy-poor and vulnerable consumers. Moreover, this type 

of intervention is envisaged on a temporary basis.

5 

“Public service obligations in the form of price setting for the supply of electricity should be used without overriding the principle of open mar-
kets in clearly defined circumstances and beneficiaries and should be limited in duration. Such circumstances might occur for example where 
supply is severely constrained, causing significantly higher electricity prices than normal, or in the event of a market failure where interventions 
by regulatory authorities and competition authorities have proven to be ineffective. This would disproportionately affect households and, in 
particular, vulnerable customers who typically expend a higher share of their disposable income on energy bills compared to high-income 
consumers”. 

2  

  Robert Schuman Centre | March 2022

targets for the reduction of greenhouse gas (GHG) 
emissions6 and the penetration of renewable energy 
sources7.  However,  it  is  the  security  of  supply 
objective  which  has  taken an additional  and more 
specific  connotation  over  recent  weeks,  following 
the invasion of Ukraine by Russia: security of supply 
now includes the very specific objective of reducing 
the dependence of the European Union on Russian 
gas. This goal can be achieved using a combination 
of measures; in this context, reducing energy con-
sumption and increasing generation from renewable 
energy sources clearly provide important contribu-
tions,  while  also  delivering  benefits  in  terms  of  a 
reduction in GHG emissions.

The  development  of  (distributed)  generation  from 
renewable  energy  sources  might  be  a  way  of 
shielding  consumers  from  the  volatility  of  electric-
ity prices in the market. Recent estimates8 put the 
potential of rooftop photovoltaic energy production 
in the European Union at 680 TWh per year, which 
is more than a quarter of the electricity consumed 
in  2019  (the  last  year  before  the  pandemic  and 
the  resulting  reduction  in  energy  consumption)9. 
However,  reaching  such  a  potential  will  take 
time,  and  while  measures  should  be  put  in  place 
to  promote  the  efficient  and  timely  deployment  of 
renewable  energy  sources,  in  particular  at  distrib-
uted level, more immediate interventions to protect 
consumers from the sharp increase in their energy 
bills  are  also  necessary.  However,  such  interven-
tions should not weaken, and instead complement, 
the incentives for these consumers to reduce con-
sumption.

In  the  Guidance  provided  in  Annex  1  to  the 
REPowerEU  Communication, 
the  European 
Commission  refers  mainly  to  “Regulated  retail 
prices during the current period of high and volatile 
energy prices” and indicates, more specifically that, 
“in line with Recital 23 [of Directive (EU) 2019/944], 
time  limited  retail  price  interventions  during  the 
current exceptional period of instability are allowed 
even  if  a  Member  State  has  already  moved  to  a 

situation  of  full  competition,  either  for  all  or  for  a 
class  of  customers”.  Therefore,  it  seems  that  the 
Commission  had  mostly  in  mind  measures  aimed 
at reducing the retail energy prices for consumers.

As  already  indicated  above,  these  are  the  type 
of  measures  already  introduced  by  a  number  of 
Member  States,  manly  through  a  reduction  in 
taxation or of components of the retail price related 
to  general  policy  objectives  (e.g.  the  support  for 
renewable  energy  sources).  However,  by  making 
energy  more  affordable  through  a  reduction  in 
the prices paid by consumers, these interventions 
might weaken the incentive to reduce consumption.

3. Protecting energy-poor consumers 
without weakening incentives to save 
energy

Other  countries,  e.g.  Belgium  and  the  United 
Kingdom,  have  intervened  by  granting  consumers 
fixed-sum  payments  partly  to  offset  their  energy 
bills.  In  other  countries,  e.g.  Italy,  the  offsetting 
payments already provided to vulnerable customers 
have been increased. 

This  type  of  measures  seems  more  aligned  with 
the aim of protecting (vulnerable) consumers while 
pursuing  the  other  policy  goals  mentioned  above. 
In  particular,  by  maintaining  consumers’  exposure 
to the correct price signals at least on their marginal 
consumption volumes, this type of measures does 
not weaken the incentives for consumers to reduce 
consumption in an efficient way.

Before we turn to some suggestions on how such 
an  approach  could  be  designed,  two  questions 
should be at least raised, if not fully addressed:

•  What  could  be  considered  as  a  correct  price 

signal?

•  To  what  extent  consumers  would  be  able  or 
willing to react to price signals and adjust their 
consumption accordingly?

6  Regulation (EU) 2021/1119 of the European Parliament and of the Council of 30 June 2021 establishing the framework for achieving climate 
neutrality and amending Regulations (EC) No 401/2009 and (EU) 2018/1999 (‘European Climate Law’) sets, in its Article 4(1), “the binding 
Union 2030 climate target [of] a domestic reduction of net greenhouse gas emissions (emissions after deduction of removals) by at least 55% 
compared to 1990 levels by 2030”. The previous target for the same year (2030) was set at 40% by the European Union’s intended nationally 
determined contribution to the 2015 Paris Agreement.

7 

 In July 2021, the European Commission unveiled a Proposal for a Directive of the European Parliament and of the Council amending Directive 
(EU) 2018/2001 of the European Parliament and of the Council, Regulation (EU) 2018/1999 of the European Parliament and of the Council 
and Directive 98/70/EC of the European Parliament and of the Council as regards the promotion of energy from renewable sources, and re-
pealing Council Directive (EU) 2015/652 (Brussels, 14.7.2021 COM(2021) 557 final 2021/0218 (COD)), increasing to 40% (from 32% as set 
by Directive (EU) 2018/2001) the target for the share of energy from renewable sources in the Union’s gross final consumption of energy in 
2030.

8 

 Bodis, K., Kougias, I., Jaeger-Waldau, A., Taylor, N. and Szabo, S., A high-resolution geospatial assessment of the rooftop solar photovoltaic 
potential in the European Union, Renewable and Sustainable Energy Reviews, ISSN 1364-0321 (online), 114, 2019, p. 109309, JRC113070. 
This article also indicates that two-third of this potential would have a cost lower than the residential tariffs at that time.

9 

 By comparison, total photovoltaic production in the European Union in 2019 was estimate at 133TWh.

3  

  Consumer protection mechanisms during the current and future period of high and volatile energy prices

On  the  first  point,  it  is  worth  recalling  that  what 
consumers pay in their bills comprises components 
to  cover  the  cost  of  the  ‘commodity’  (electricity 
or  gas)  and  the  cost  of  delivering  the  commodity 
to  them  through  the  networks,  as  well  as  a  fiscal 
component  (excise  duty  and  VAT)  and  other 
charges  (typically  to  fund  renewables  support 
schemes)10. It is questionable whether these latter 
charges contribute to provide correct price signals 
to  consumers,  or  whether  the  schemes  that  they 
contribute  to  fund  should  instead  be  financed 
through the general budget. In fact, such schemes 
are aimed at promoting the achievement of general 
policy  goals  (such  as  decarbonisation),  whose 
costs might be more fairly allocated on the basis of 
consumers’ ability to pay (therefore in a progressive 
manner,  which  is  typical  of  direct  taxation),  rather 
than being charged on energy bills (which typically 
involve a regressive allocation)11. 

With respect to the retail price component reflecting 
the  cost  of  the  commodity  (electricity  or  gas)12, 
concerns  have  been  raised  in  the  last  weeks 
regarding the extent to which the current wholesale 
prices  for  gas  and  then,  as  a  result,  for  electrici-
ty, reflect the fundamentals of the markets and are 
not instead the result of speculative behaviour. As a 
consequence, there have been calls for intervention 
on the pricing of gas – to take into account the fact 
that significant volumes of gas are still imported on 
the basis of long-term contracts whose prices have 
not  increased  to  the  same  extent  as  those  of  the 
spot  market  -  and  in  the  price-setting  mechanism 
of the wholesale electricity market, in an attempt to 
decouple electricity prices from gas prices.

Assessing whether current wholesale energy prices 
reflect the market fundamentals should clearly be a 
priority, but goes beyond the scope of the present 
Policy Brief.

On the second aspect, the extent to which consumers 
might be able and willing to react to higher energy 
prices and adjust their consumption accordingly, we 
only  note  that  a  number  of  recent  developments, 
made possible by technological advances and dig-
italisation, indicate the aspiration of consumers, or 
at least provide them with the possibility of moving 
away from being exposed to variable and possibly 

increasing  energy  prices.  We  refer  here  to  peer-
to-peer  trading  and  the  different  types  of  energy 
communities.  Smart  meters  and  energy  service 
companies and/or aggregators might also facilitate 
the deployment of demand-response schemes. It is 
therefore  likely  that  the  price  elasticity  of  demand 
in the future could be higher than it was in the past.

4. Protecting energy-poor consumers 
with rebate payments

We  now  turn  to  how  an  approach  which  protects 
consumers  from  high  energy  bills,  while  still 
preserving the correct price signal on marginal con-
sumption volumes, could be designed. Preliminari-
ly, we note that, while in autumn last year it looked 
as  if  the  energy  price  surge  was  a  short-lived 
phenomenon, it now seems more likely that prices 
will  remain  higher  than  in  the  past  for  some  time 
to  come. Therefore,  some  form  of  more  structural 
and  sustainable  consumer  protection  scheme  is 
needed and this might likely cover a wider share of 
the  population  than  those  which  were  traditionally 
referred to as vulnerable customers. Said it differ-
ently, a larger share of the population has become 
and  will  remain  ‘energy  poor’  for  some  time  to 
come and therefore any support scheme should be 
designed considering that it might apply on a larger 
scale.

On  the  basis  of  the  considerations  developed 
above, a more structural and sustainable protection 
scheme,  which  is  aligned  with  the  other  energy 
policy goals, could entail that:

•  all consumers who have not opted for a fixed-
price supply contract would be exposed, for the 
commodity component of the retail price, to the 
short-term wholesale price;

•  at  the  same  time,  these  consumers  would  be 
entitled  to  apply  for  a  rebate  payment  if  they 
find  themselves  unable  to  pay  their  energy 
bills. Rebate payments would be granted on an 
individual consumer basis.

• 

for  the  calculation  of  the  level  of  the  rebate 
payment,  consideration  would  be  given  to  a 
reference level of consumption. This reference 
level could be determined so as:

10   According to data provided by ACER and based on incumbents’ offers in capital cities, in 2019, charges to fund renewable support schemes 
represented, on average, 14% of total electricity bills of household consumers in the European Union. VAT and other taxes represented, re-
spectively, 14% and 10% of household electricity bills and 13% and 9% of household gas bills. ACER Market Monitoring Report 2019 – Energy 
Retail and Consumer Protection Volume, Figures 15 and 19. 

11   As energy consumption account for a share of total household expenditure which decreases with income.

12   In 2019, this component represented, on average, 37% and 47% of total electricity and gas bills, respectively, for households in the European 
Union (based on incumbents’ offers in capital cities). ACER Market Monitoring Report 2019 – Energy Retail and Consumer Protection Volume, 
Figures 15 and 19.

4  

  Robert Schuman Centre | March 2022

 » to  cover  the  basic  energy  needs  (lighting, 
heating and basic kitchen appliances) of the 
consumer 13; or

 » to  cover  the  standard  energy  needs  (for 
example  using  past  consumption  as  a 
guide) of the consumer.

the  characteristics  of 

In  both  cases, 
the 
consumer’s  household  would  have  to  be  taken 
into account. The rebate payment would then be 
equal  to  the  difference  between  the  energy  bill 
for  the  reference  consumption  level,  calculated 
on  the  basis  of  the  actual  prices  and  charges, 
and  the  maximum  expenditure  on  energy  that 
the  household  is  deemed  to  be  able  to  afford 
(more on this further below). The rebate payment 
could be included, as an offset item, already in 
the energy bill. In this way, the rebate payment, 
while protecting the consumers from the impact 
of higher prices on their total energy costs, would 
not  depend  on  the  actual  consumption  levels 
and,  at  the  margin,  the  consumers  would  be 
exposed to the full energy costs, thus promoting 
energy efficiency and (at least indirect14) demand 
response;

• 

for those consumers who have opted for fixed-
price  supply  contracts,  these  contracts  could 
be modified to operate on a fixed-volume basis 
(e.g.  based  on  historical  consumption),  with 
marginal  quantities,  in  excess  or  in  reduction 
with  respect  to  such  a  fixed  volume,  being 
valued on the basis of the full short-term price.

Such a scheme would expose marginal consump-
tion to the full energy cost, while:

• 

reducing the energy bills to an affordable level 
for those consumers who have not opted for a 
fixed-price supply contract; and

•  not  significantly  changing  the  energy  bills  for 
those  consumers  who  have  opted  for  fixed-
price contract.

The  most  complex  implementation  aspects  of 
such a scheme would be the determination of the 
reference  consumption  level  and  the  maximum 

affordable  energy  cost  for  each  consumer.  As 
mentioned  above,  the  protection  can  cover  the 
basic energy needs or the standard energy needs. 
In  the  latter  case,  a  combination  of  standard  con-
sumption  profiles,  based  on  the  household  char-
acteristics, and historic consumption levels for the 
specific  household  could  be  used  to  determine 
the  reference  consumption  level.  By  changing 
the  relative  weightings  of  the  two  components, 
incentives  could  be  provided  for  consumers  to  ra-
tionalise  their  consumption  habits.  For  the  deter-
mination of the maximum affordable energy costs, 
a  threshold  indicator  of  energy  poverty  could  be 
used15;  it  would  indicate  which  is  the  maximum 
proportion of income that a household could devote 
to energy without becoming ‘energy poor’.

Two final remarks. First, Italy has been using fixed 
rebate payments to support vulnerable consumers 
since 2009. However, the level of the payment is not 
calculated,  as  proposed  above,  as  the  difference 
between  the  actual  energy  bill  for  a  reference 
consumption  level  and  the  maximum  payment  for 
energy  that  a  household  is  deemed  to  be  able  to 
afford. Instead:

• 

the level of the rebate payment depends on the 
number of members and other characteristics of 
the household. For the first quarter of 2022, the 
quarterly  rebate  payment  for  electricity  (which 
includes an extraordinary component due to the 
recent  price  surges)  varied  between  165.60€ 
for a one/two-person household to 235.80€ for 
households with more than four members. The 
rebate  payment  for  gas  also  depends  on  the 
climatic  area16  where  the  consumer  lives  and 
the  purposes  for  which  the  gas  is  used17.  For 
the  first  quarter  of  2022,  the  quarterly  rebate 
payment varied between 62.10€, for a household 
with  up  to  four  members  using  gas  for  water 
heating  and  cooking  only,  and  816.30€,  for  a 
household with more than 4 members living in 
the coldest climatic area and using gas also for 
space heating;

•  access  to  this  rebate  payment  is  based  on 
an  indicator  of  the  economic  situation  of  the 
household: the ISEE – Indicator of the equivalent 

13   As already indicated, the need to ensure that consumers are able to cover their basic energy needs is also the justification for derogating from 

the principle of market-based supply prices in Article 5(3) of Directive (EU) 2019/944.

14   Indirect demand response is the reduction of consumption at times at high prices.

15   For example, in the United Kingdom, according to the first official definition (1991), which is still unofficially used in other countries, “a house-
hold is said to be fuel poor if it needs to spend more than 10% of its income on fuel to maintain an adequate level of warmth” (see Energy 
poverty Energy (europa.eu)).

16   Italy is divided in six climatic areas.

17   A separate rebate payment is granted for the use of gas for water heating and cooking and for the use of gas for space heating, with the latter 

attracting a higher rebate payment.

5  

  Consumer protection mechanisms during the current and future period of high and volatile energy prices

economic  situation.  This  indicator  takes  into 
account  the  income  and  the  financial  and  real 
estate  assets  of  the  consumer,  as  well  as  the 
number of people in the household.

While  the  scheme  in  Italy  is  implemented  in  a 
different way than the one proposed in this Policy 
Brief,  it  shares  the  same  characteristics  of  having 
the  rebate  payment  independent  of  actual  con-
sumption.  Therefore,  also  in  the  Italian  scheme, 
consumers  are  exposed  to  the  market  prices  on 
their  marginal  consumption  volumes,  thus  having 
strong incentive to consume electricity and gas ef-
ficiently18.

Secondly  and  last,  the  type  of  approach  outlined 
above  might  also  be  appropriate  for  businesses, 
even though the effect might be less clear. In fact, 
by  leaving  business  customers  exposed  to  the 
actual  cost  of  energy  at  the  margin,  they  could 
still  consider  such  a  cost  in  pricing  their  entire 
production. This would be the rational behaviour for 
businesses and therefore, while any measure of the 
type proposed above would help their “bottom line”, 
it  might  not  protect  them  from  losing  competitive-
ness, if their competitors face lower energy prices 
(for their whole consumption or at the margin). 

18   In a not too distant past, protection of ‘vulnerable’ electricity consumers in Italy was implemented by granting lower electricity prices to low 
consumption levels. This approach had several unintended negative consequences, including: (i) the approach was poorly targeting the con-
sumers in real need (usually large families with higher electricity consumption); and (ii) provided reduced incentive to save electricity by those 
who benefitted from support.

6  

  Robert Schuman Centre | March 2022

The Florence School of Regulation

The Florence School of Regulation (FSR) was founded in 2004 as a part-
nership between the Council of the European Energy Regulators (CEER) 
and the European University Institute (EUI), and it works closely with the 
European Commission. The Florence School of Regulation, dealing with 
the main network industries, has developed a strong core of general regu-
latory topics and concepts as well as inter-sectoral discussion of regulatory 
practices and policies.
Complete information on our activities can be found online at: fsr.eui.eu

Robert Schuman Centre for Advanced Studies

The Robert Schuman Centre for Advanced Studies (RSCAS), created in 
1992 and directed by Professor Erik Jones, aims to develop inter-discipli-
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Co-funded by the 
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of the European Union

© European University Institute, 2022
Editorial matter and selection © Alberto Pototschnig, Jean-Michel Glachant,  
Leonardo Meeus, Ilaria Conti, 2022

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  RSC | Policy Brief | Issue 2022/20 | March 2022

doi:10.2870/920931
ISBN:978-92-9466-159-3
ISSN:2467-4540
QM-AX-22-020-EN-N