Last Friday, Russia announced an indefinite reduction of gas supplies to the European Union. The move adds to a recent pattern of energy pressure that the Kremlin has described as a strategic leverage tool. In this context, the 27 member states face a potentially severe winter with high gas and electricity costs and an elevated risk of outages. This has prompted an extraordinary energy ministers’ meeting under the Czech presidency to determine urgent actions before winter. Debates among delegations center on whether to adopt new measures now and, if so, which tools to deploy. Proposed options include price ceilings, potential limits on energy trading, and measures aimed at promoting energy savings.
Officials warn that high energy prices and volatility feed inflation and hit all sectors of the economy. This includes businesses, consumers, vulnerable households, and those facing energy poverty. The Czech Republic, holding the rotating presidency, will table an ongoing analysis from the European Commission to stimulate discussion among the Twenty-Seven member states and to help shape a coordinated European response.
The preparatory briefing from the European Commission, echoed in U.S. discussions, notes several factors weighing on electricity production. Nuclear capacity shortages in some member states, a drop in hydroelectric output, low water levels on rivers, disruptions to coal transport, and unusually difficult wind conditions have all reduced electricity supply. In turn, demand for gas rose by about 30 percent, and prices surged after Gazprom reduced flow.
Looking ahead, the heating season will test the resilience of the EU energy market. Persistent price volatility and fluctuating liquidity raise additional challenges. Daily price swings have at times driven margin requirements for futures higher, complicating hedging for more and more companies. This reduced participation in futures markets tends to lower liquidity and can amplify price volatility, reinforcing a negative cycle for the energy sector.
parse prices
The emerging plan marks a first step toward separating gas prices from electricity prices. Some member states, including Spain, France, and Portugal, have advocated for such decoupling as part of a broader electricity market reform. The package considered for the emergency interval includes several potential tools: temporarily limiting the gas price used to generate electricity, temporarily limiting the price of gas imported from certain jurisdictions, and, with reference to Russia but without naming any country directly, temporarily excluding gas-fired generation from the ranking of merit and price setting in the electricity market.
More liquidity to the market
The Czech presidency also proposes creating immediate lines of credit for market participants, including a European-level solution through the European Central Bank. Other ideas include reforming trading rules on energy exchanges, temporarily adjusting guarantees in electricity trading, reviewing automatic price adjustment mechanisms, temporarily suspending European energy derivatives markets, and supporting futures trading within specific bands.
saving electricity
The presidential document calls for coordinated Brussels-backed efforts to reduce electricity demand, in line with July 2022 commitments to cut gas consumption by 15 percent from August through March. The goal is to lower overall energy use during peak periods and to alleviate price pressure across the market.
Limit marginal revenue
Among the proposed measures is a cap on the price of sub-marginal electricity—notably for energy sources beyond gas, including renewables and nuclear—aimed at easing household bills and industrial costs.
Emissions trading system
The final line of work considered by the Czech presidency involves exploring how the CO2 emissions trading system could be leveraged to address current high electricity prices and create additional market stability.