The critical situation of the European energy market and exorbitant energy prices are increasingly affecting European households and businesses. With price increases reaching double or even triple digits, rising energy bills directly impact the viability of businesses across the economy.
High gas and electricity prices threaten to cause the closure of thousands of European companies and, as a result, relevant production shortfalls. Estimates show that 70% of Europe’s fertilizer production has been halted or slowed down, while 50% of total aluminum capacity has been lost. There is a real danger that companies and, in particular, energy-intensive industries will permanently relocate outside Europe, dramatically increasing our dependence on third countries and leading to a loss of competitiveness and jobs.
It is a matter of survival to find ways within the European Union to mitigate the impact of energy prices – prices that are debilitating – as a matter of urgency. Well-designed emergency measures should be implemented strictly temporarily, monitored closely, and, if necessary, adjusted.
14th September package: Necessary first steps
CIP – Confederation of Portuguese Business, believes that this first package of emergency intervention in the energy market is necessary. The proposed electricity demand reduction, additional energy efficiency measures, and flexibility on the demand side will help rebalance supply and demand and ensure that all stakeholders, not only companies, are committed to mitigating the energy crisis.
If introduced, the proposed ‘infra-marginal revenue cap’ and ‘solidarity contribution’ should be modelled to remain proportionate and not undermine the ability of sectors to invest in decarbonisation and supply the European market.
For example, the ‘inframarginal revenue cap’ should be applied to actual revenues earned and not affect energy sold through long-term contracts and power purchase agreements (PPAs), as these are the main hedging instruments. Maintaining a uniform EU-wide cap is essential to preserve the internal wholesale market.
For the temporary ‘solidarity contribution,’ for example, a representative set of historical profits should be used, including the possibility of excluding the year 2020 – when the sector was heavily affected by the pandemic of COVID-19. Furthermore, to limit the negative impact on the confidence of companies’ future investments, the contribution should only include genuinely extraordinary “excess” profits. This requires a higher limit than the proposed increase, currently 20%, above this historic average taxable profit.
In both these cases, the newly generated gains for governments must be redistributed equally and quickly among vulnerable households and all businesses facing unbearable energy costs next winter.
More action is urgently needed to ease the burden on European businesses
There needs to be more than the package of September 14th to mitigate the impact of high energy prices on European companies. To avoid further production losses, the EU state aid framework must be adjusted to temporarily allow Member States to grant the necessary aid to affected companies.
This involves prolonging the Temporary Crisis Framework (TCF) and defining less restrictive eligibility criteria for the compensation of energy costs. An extension of the list of sectors eligible for indirect cost compensation under the ETS State Aid Guidelines and more substantial use of the ETS Market Stabilisation Reserve are also essential to relieving the European industry.
In addition, policymakers should urgently consider putting a temporary, EU-wide measure to decouple electricity prices from gas prices. The unusual situation in the energy market can only justify this exceptional measure. If well designed, considering the impact on the security of supply and demand, such a measure can effectively reduce energy bills.
This winter, every MWh and bcm will count. More can and must be done to increase the energy supply in Europe. It is imperative to step up external outreach by bringing suppliers together and develop additional renewable, nuclear, low carbon, and natural gas energy capacities in Europe as soon as possible. As many companies are on the verge of collapse, all options to facilitate energy production should be considered, including temporary legislative adaptations or moratoriums.
While we move forward with temporary and short-term exceptional measures, we must maintain sight of our decarbonisation goal. Europe needs to return as soon as possible to a functioning energy market that encourages investments in low-carbon technologies, networks, and interconnections.