In a span of two weeks—the pace normally seen over months—the energy ministers of the European Union reached a political agreement. It centers on a new set of emergency measures aimed at intervening in the European electricity market to lower bills for millions of homes and businesses. The plan, recommended by the European Commission, includes a mandatory 5% reduction in electricity consumption during peak hours and a 10% reduction overall, alongside a temporary and extraordinary income cap on low-cost marginal technologies, such as renewable energy. A solidarity contribution from oil and gas companies is also part of the package.
It took less than an hour to approve the arrangement, which arrived at the meeting just as the Czech presidency of the EU was winding down. The goal was to reconcile the positions of the diverse Member States and ensure the flexibility necessary for effective application—allowing governments to continue implementing measures aligned with the European framework. In practice, this means that governments can adapt the plan to their national contexts while preserving core European objectives. Notably, Prime Minister Pedro Sánchez and other leaders pushed for maintaining the reduction in benefits from marginal technologies introduced previously, while Parliament moved forward with a new 1.2% tax on energy companies currently operating in the market.
“We live in exceptional times. The agreement reached today brings relief to European citizens and businesses,” stated a Council chairman. “Member States will flatten the electricity demand curve during peak hours, which should have a direct positive effect on prices,” he added, and “the excess profits of the energy sector will be redistributed to those struggling to pay their bills.”
Forced but flexible savings
The deal introduces a voluntary global reduction target of 10% in gross electricity consumption and a mandatory 5% reduction target during peak hours—the latter the costliest portion—to curb gas use by the end of March 2023. Member States will retain full discretion to implement measures that meet both objectives within that period, adjusting as conditions warrant. A second pillar limits unexpected profits to €180 per megawatt-hour for electricity producers, including intermediaries who rely on marginal technologies such as renewables or nuclear to generate power.
According to the Twenty-Seven, some operators have enjoyed unexpected gains in recent months while facing relatively unchanged operating costs, due to coal and gas acting as marginal resources that set prices and push up the final electricity bill. The cap level has drawn critique from countries like Spain, which view it as too high to safeguard investment in renewables. The agreement, however, allows Spain to maintain the €67 per MWh cap that has been in place since last year.
Energy rate
The regulation’s third pillar introduces a “Mandatory temporary solidarity contribution” targeting profits reported by companies in crude oil, natural gas, coal, and refinery sectors. The contribution would be calculated on taxable earnings, defined under national tax rules for the 2022 and/or 2023 tax year, and would come into effect when average annual taxable profits exceed a 20% rise since 2018. The solidarity levy would be applied as a percentage on extraordinary profits in addition to existing taxes and duties across the 33 Member States. While not an identical replica of the tax proposed by Spain’s government, the regulation ensures that Member States can maintain national measures if they are equivalent in effect and scope.
Additionally, a new standard will permit governments to temporarily set a price cap for electricity supplied to small and medium-sized enterprises, supporting SMEs and enabling a below-cost price during exceptional conditions. Under the agreement, the proceeds from the solidarity contribution will fund relief for households and businesses and mitigate the impact of high retail electricity prices. The measures would enter into force once they are officially adopted and published in the EU Official Journal.