A hotter summer than before has led to record temperatures that push energy use higher as air conditioning runs longer and harder. France has cut nuclear output, with 29 of its 56 reactors producing little or no electricity, reducing the nuclear contribution to renewables due to drought and weaker winds. Gas remains the more expensive option as Europe faces energy pressures from Russia, a situation described as energy blackmail by critics, contributing to steeper electricity prices. In short, Europe is facing a perfect storm that has prompted the European Commission to intervene. The plan is to separate electricity and gas pricing, reduce demand, and mobilize additional resources to shield vulnerable consumers.
At present, these ideas are coalescing in a preliminary working document Brussels has tabled for the European Union. An emergency meeting of EU energy ministers occurred on September 9 after a summer filled with worrisome episodes. One notable incident saw electricity prices in the Baltic states spike to 4,000 euros per megawatt hour on August 16. It proved to be a sharp escalation, and Brussels quickly drafted a response that would urge a coordinated reduction in electricity consumption across the EU. The proposal suggests measures similar to those used to curb gas demand, especially during peak daytime hours when electricity costs rise, with incentives for households and compensation for companies that cut consumption.
Brussels also proposes a price ceiling for marginal technologies beyond the main renewables, nuclear, or low-cost gas such as lignite. The saved funds could finance consumer support programs, helping to lower final electricity bills through regulated tariffs. However, introducing such a mechanism would clash with taxes that produce windfall profits for power producers that do not pay for carbon dioxide rights or gas usage. These windfalls would be avoided if the price ceiling path is chosen. The European Commission president stated that a portion of excess profits earned by power producers would be redirected to support low-income households and vulnerable businesses during these expensive electricity times.
Instead, Commission experts favor other options, such as Europeanizing the regulated price system used in Greece, introducing retail price interventions, or subsidizing to offset the CO2 emissions trading system’s impact on electricity. Lowering electricity prices must not erode the incentive to conserve energy. They are not enthusiastic about models like the Iberian mechanism that would increase gas and electricity demand and risk supply security, permitting Spain and Portugal to cap gas prices for electricity generation and lower bills.
Industry stakeholders share concerns that the Iberian mechanism is poorly designed, failing to balance protecting citizens from energy poverty with maintaining a price signal that reflects energy scarcity and value. A growing use of gas for electricity in Spain is seen as a warning sign. The message is clear: reducing gas use for electricity in the coming months and years is essential, and replicating interventions risk diminishing their effectiveness, according to Kristian Ruby, general secretary of Eurelectric, which represents European electricity companies. He notes that gas-only separation will not suffice because coal and other fuels are also rising in price. In the near term, he argues, the EU should pursue large-scale energy savings, hold auctions that compensate industrial consumers for efficiency gains, and avoid diluting the price signal too much.
Experts acknowledge no miracle solution will return prices to pre-crisis levels or erase inflationary effects, which remain a challenge in the euro area, rising to around 9 percent in August. Yet the situation is escalating into a new and serious phase, warranting action. When Spain launched its push last September to persuade partners to curb gas and electricity prices and reform the electricity market, many countries joined the effort, though some remained hesitant.
The EU has previously focused on recovering from the health and economic shocks of the COVID-19 pandemic and has repeatedly warned that the rise in bills is a temporary problem linked to increased gas demand from Asia, Russia, and Russia’s production adjustments, along with higher emissions trading costs. Official projections suggested that those issues would ease by spring, but reality proved otherwise. Prices are expected to stay high into 2024 or 2025, prompting precautionary steps.
The electricity market has faced disruption, with Putin described as an actor seeking to manipulate and destabilize it. The European Commission president announced plans that have earned cautious support from countries traditionally resistant to reform. Additional details regarding Brussels’ strategy are expected in the days ahead, with a state of the union debate in Strasbourg on September 14 offering a chance for Member States to express their preferences.