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Emergency intervention to address high energy prices

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Emergency intervention to address high energy prices

SUMMARY OF:

Council Regulation (EU) 2022/1854 on an emergency intervention to address high energy prices

WHAT IS THE AIM OF THE REGULATION?

The regulation introduces measures to reduce demand for electricity and redistribute the energy sector’s surplus revenues and profits to households and businesses to mitigate the effects of rising energy prices.

KEY POINTS

Reducing electricity demand

The regulation introduces:

a voluntary 10% monthly reduction target in electricity consumption;
a mandatory 5% reduction target in electricity consumption during peak hours.

The baseline for comparison is the average electricity consumption in the corresponding months of the period from November to March in the preceding 5 years.

European Union (EU) Member States are responsible for the following.

Identifying peak hours corresponding to a minimum of 10% of all hours between 1 December 2022 and 31 March 2023, during which they will reduce demand.
Choosing which measures they adopt to reduce consumption, which must:
- be clearly defined, transparent, proportionate, targeted, non-discriminatory, and verifiable;
- not distort competition or the proper functioning of the electricity market; and
- not prevent the process of replacing fossil fuel technologies with technologies using electricity.

Mandatory cap on energy market revenues

Market revenues of inframarginal electricity generators are capped at €180/MWh in order to temporarily limit, in the presence of extremely high gas prices inflating the costs of gas-fired power plants, extraordinary market revenues of electricity producers with lower marginal costs. This level is designed to preserve the profitability of the operators and avoid hindering investments in renewable energies. It applies to electricity generated from:

wind,
solar energy (thermal and photovoltaic),
geothermal energy,
hydropower without reservoirs,
biomass (excluding biomethane),
waste,
nuclear energy,
lignite,
crude petroleum products, or
peat.

Member States must:

ensure that the cap targets all revenues, including those of intermediaries working on behalf of producers;
put effective measures in place to prevent producers circumventing these obligations, particularly where they are controlled, or partially owned, by other undertakings.

Exceptions to applying the cap could apply in some circumstances, including:

demonstration projects;
producers with capacities of less than 1 MW, where the cap could lead to a significant administrative burden;
electricity produced in hybrid plants which also use conventional energy sources, where there is a risk of increasing CO₂ emissions and decreasing renewable energy generation.

National crisis measures

Member States may set different limits on revenues to:

differentiate between technologies;
apply further limits on electricity traders;
apply higher limits to producers with investments and operating costs greater than €180/MWh; or
maintain or introduce national measures to limit the revenues of producers generating electricity from sources not listed above.

Member States may also set a specific cap on market revenues from the sale of electricity produced from coal or certain hydropower units not covered by the above list. The measures must:

be proportionate and non-discriminatory;
not jeopardise investment signals;
ensure that the investments and operating costs are covered;
not distort the functioning of electricity wholesale markets.

Member States must ensure that all surplus revenues resulting from the cap are used to finance targeted support for final electricity customers to mitigate the impact of high electricity prices. This may include:

support for reducing electricity consumption;
direct transfers to customers, including reductions in network tariffs;
compensation to suppliers who deliver electricity to customers below cost, following national price-setting;
lowering electricity prices for end customers;
promoting customer investment in decarbonisation technologies, renewables and energy efficiency.

Member States with a net energy import dependence higher than 100% must conclude an agreement by 1 December 2022 to share surplus revenues appropriately with the exporting Member State. All Member States importing energy may conclude similar agreements.

Retail measures

Member States may temporarily, in some circumstances:

intervene by setting prices for electricity supply to small and medium-sized enterprises;
exceptionally set prices below cost.

Solidarity contribution by the petroleum, gas, coal and refinery sectors

The regulation sets a mandatory temporary solidarity contribution on the surplus profits of businesses in the petroleum, natural gas, coal and refinery sectors, calculated on taxable profits in the fiscal year starting in 2022 and/or in 2023 which are above a 20% increase of the average yearly taxable profits between 2018 and 2021.

Member States should use the proceeds to provide targeted financial support for:

customers, particularly vulnerable households, and companies, to mitigate the effects of high retail electricity prices;
reducing energy consumption through various schemes;
promoting domestic investment in renewables, structural energy efficiency and other decarbonisation technologies;
companies in energy-intensive industries, on the condition that they invest in renewables, energy efficiency or other decarbonisation technologies;
developing energy autonomy, in particular investments in line with the REPowerEU objectives;
common financing of measures by Member States for protecting employment and reskilling and upskilling of the workforce.

Review

The European Commission will review the demand-reduction and price-capping measures by 30 April 2023. The solidarity contribution measure will be reviewed by 15 October 2023.

FOR WHICH PERIOD DOES THE REGULATION APPLY?

It has applied since 8 October 2022. The regulation constitutes a temporary emergency measure; most of its rules will expire on 31 December 2023.

BACKGROUND

For further information, see also:

Energy security (European Commission).

MAIN DOCUMENT

Council Regulation (EU) 2022/1854 of 6 October 2022 on an emergency intervention to address high energy prices (OJ L 261 I, 7.10.2022, pp. 1–21).