EU plans power company ‘revenue caps’ and mandatory peak-hour power savings – Eurasia Review

By Frederic Simon

(EurActiv) – An EU bill introduces for the first time mandatory demand reduction targets for electricity consumption and imposes “a revenue limit” on electricity companies making windfall profits from the crisis energy, according to a leaked proposal seen by EURACTIV.

The revenue cap is the centerpiece of a draft European regulation on emergency measures to stabilize the electricity market, which is expected to be unveiled in the coming weeks by the European Commission.

It will be discussed at an extraordinary meeting of EU energy ministers on Friday to address the EU’s response to the energy crisis.

“The Commission proposes a limit of €200/MWh” for so-called “inframarginal” electricity producers, the proposal states with reference to renewable energies, nuclear and lignite, which have low operating costs and have the profited more from high gas prices.

Renewable and nuclear electricity producers are drawing “huge revenues” from the crisis, explained Ursula von der Leyen, President of the European Commission.

“These revenues do not reflect their production costs. It is therefore time for consumers to take advantage of this, ”she said during a press briefing on Wednesday, September 7.

“We will propose to redirect these windfall benefits to Member States so that [they] can support vulnerable households and vulnerable businesses.

Preserve solar and wind power margins

EU officials said the intention behind the €200/MWh limit was to favor renewable energy technologies over fossil fuel-based power generators like coal or gas, which have higher fuel costs.

“By far the cheapest are renewable generators – solar and wind in particular,” said a senior Commission official who briefed the press on the proposals on Wednesday.

“And so, if you set a similar revenue cap for all inframarginal technologies, the cheapest ones will see the highest margin up to that cap and retain revenue,” the official said.

But some doubt the move, saying it won’t help bring prices down, which reaches €438/MWh on the German daily market yesterday and passed the €1,000/MWh milestone year-ahead prices for the first time at the end of August.

“It’s really crazy,” said Mike Parr, market researcher and independent consultant. “€100 would have been generous. €200 is crazy and will have minimal impact on oil prices,” he said.

Lion Hirth, a professor at Berlin’s Hertie School, said a uniform revenue cap of €200/MWh for all generators “means that some plants – modern renewables, nuclear – will continue to generate very high profits”. , but will be “too low for coal plants” which are currently facing unprecedented fuel and transportation costs.

More importantly, Hirth pointed to the “lack of forward hedging provisions” on power exchanges.

Gensets typically sell out their output two to four years in advance, he explained. But with the current high prices, “they sold power at prices well below current spot prices,” he noted.

“This is a crucial aspect that needs to be taken into account in any rent capture policy,” he told EURACTIV, saying the draft regulation does not specify how this could be done.

“If spot market revenues are capped at €200/MWh, this could be insufficient for hedged power plants to meet their futures contract payment obligations,” he warned.

Unprecedented demand reduction measures

The proposed revenue cap is complemented by unprecedented measures to reduce electricity demand:

  • An indicative target obliges EU member states to “reduce the overall electricity consumption” of households – for example, via public information campaigns or tenders for “unconsumed energy”; and
  • “A mandatory target of at least 5% reduction in net electricity consumption during peak hours”.

While the first target is aimed at the general public, “the binding target is more specifically aimed at consumers who can offer flexibility through demand reduction offers on an hourly basis”, the Commission says in the draft.

To achieve this, EU countries are encouraged to consider “market-based measures such as auctions or tendering systems”, which may include “financial incentives or compensation to market participants participants,” the project says.

Initial reactions to these proposals have been more positive.

“First, we need to moderate demand,” said Kristian Ruby, secretary general of Eurelectric, the European electricity industry association. “When there’s less supply, you have to have less demand – that’s a fundamental thing,” he told EURACTIV.

“Saving energy is the most important thing to do right now,” said Bram Claeys of the Regulatory Assistance Project (RAP), a clean energy think tank. “It’s one of the few actions that can still have an impact this winter,” he told EURACTIV.

For Claeys, the focus on peak reduction is particularly relevant. “This is exactly the way forward: demand-side flexibility and storage must take over from the role gas-fired power plants play in the power system.”

However, he questions the impact this will have on consumer bills. “As peak times are constrained by definition, peak reduction has a relatively smaller impact on average price levels,” he warned.

Ruby, for her part, cautioned policymakers about revenue caps. “We have to keep in mind that investor certainty is key to failing next winter and the winter after. So watch what you’re doing.

“We don’t say an absolute ‘no’ to everything, and we are ready to discuss,” he told EURACTIV. “But it’s really, really essential that policymakers address the root causes rather than the consequences” of the energy crisis.