Debate: European solutions to the rise of energy prices for businesses and consumers: the role of energy efficiency and renewable energy and the need to tackle energy poverty
Date: WEDNESDAY, 6 OCTOBER 2021
Speaker: Kadri Simson
Language: EN

This sharp rise is the result of a combination of factors. The world economy has started to rebound after the pandemic and is hungry for energy, most notably in Asia. At the same time, Europe’s gas supply has tightened. An unusually cold winter and spring last year depleted the gas storage in Europe. Then there was a summer of maintenance work on gas pipelines delayed by the pandemic, reduced deliveries. LNG supply was hampered by technical problems and lower investment. Europe’s domestic gas production has also decreased. While long-term contracts from Russia were respected, no extra capacity was booked despite the rising prices exacerbated by tight balance.  To make things worse, less wind than usual in Western Europe and less hydropower reduced the available amount of renewable energy. The carbon price has also increased steadily due to economic recovery and greater use of carbon-intensive fuels, but this explains only a limited part of the electricity price increase.  All of this has driven up gas prices across the globe and created the ingredients for an abrupt price surge in Europe.  Market expectations indicate that this is a temporary situation, but gas prices will remain high throughout the winter and should gradually decrease from spring next year based on current demand for gas. Gas underground storage is above 75% across Europe. This level is lower than the 10-year average. It is tight but adequate to cover the winter season needs. The evolution of the winter season is a key variable to watch closely.  This price shock cannot be underestimated. It is hurting our citizens and in particular the most vulnerable households, weakening competitiveness and adding to inflationary pressure. If left unchecked, it risks compromising Europe’s recovery as it takes hold. There is no question that we need to take policy measures. Europe has gone through high energy prices many times in the past and responded to them through diversification of supply sources and market integration.  Today, the price rise happens while a profound transformation of the energy system is underway. We need to design a fair and forward-looking response. We have to be clear: the current price hike has little to do with our climate policies and much to do with our dependence on imported fossil fuels and their relative prices. The Green Deal provides the only lasting solution to Europe’s energy challenge: more renewables and improved energy efficiency. Wind and solar have continued to generate the cheapest electricity in Europe in recent months. They are not exposed to price volatility.  Some are pointing at the European electricity market design as a part of the problem. Yet, when demand and price are high everywhere in the world, it is impossible for the EU to be immune. The best response to the price challenge is to progress faster towards our target goal of 65% of renewable electricity by 2030.  The electricity market design is tailor-made to deliver more renewables and cheaper energy to all consumers and to enhance cross-border integration. Last year, Member States with the highest share of renewables in their mix had the lowest wholesale electricity prices with several cases of negative price on the day-ahead market.  We believe this framework is sound, but we see the challenges and we are ready to launch a study with ACER based on the current electricity market design and its ability to deliver a lower-cost and secure transition to a net-zero energy system.  So what can be done now? In the Commission’s view, Europe must respond by delivering swift, coordinated action at Member State level, by leveraging the strength of its single market and by increasing its preparedness for future crises. The Commission will present next week a toolbox of measures Member States can take in line with EU law, both short and medium term. Providing targeted support to consumers, direct payments to those most at risk of energy poverty, cutting energy taxes, shifting charges to general taxation are all measures that can be taken very swiftly, under EU rules. The immediate priority should be to mitigate social impacts and protect vulnerable households, ensuring that energy poverty is not aggravated. Higher than expected ETS revenues provide space for doing so. Business, and in particular SMEs, can be given relief through state aid, or by facilitating longer-term power purchase agreements.  Second, we need to ensure that markets work in a fair and transparent way. Competition authorities and national regulators with ACER have a role to play in market surveillance and prevention of uncompetitive practices. Protecting consumers, including by preventing disconnection and supporting self-consumption and energy communities is also key.  Finally, it’s essential to strengthen Europe’s preparedness and resilience to price hikes. We need to invest in flexibility and storage to integrate more variable renewable energy in the electricity market. We need well-functioning and liquid gas markets in the transition, ready to integrate growing shares of renewable gases. By the end of the year, I will propose a reform of the gas market and will review in that context issues around storage and security of supply.  More ideas have been put forward by the Member States and Members of the Parliament such as forms of joint purchase of emergency gas reserves, and we are analysing all of them. We need also to remain mindful of the importance of the geopolitics of energy and develop a more strategic approach to external energy policy.  This price shock is an unexpected crisis, at a critical juncture. We must respond together and stay on course to a cleaner, more secure and more affordable energy future. Thank you for your attention and now I’m looking forward to hearing your views on this important topic.