President of the European Commission Ursula von der Leyen unveiled an emergency package aimed at easing electricity prices amid rising inflation. The plan includes a 33 percent tax on extraordinary profits earned by oil companies in 2022, a mandatory 5 percent cut in electricity use during peak hours in addition to an overall 10 percent reduction, and a revenue cap for electricity producers whose costs are lower than gas prices, such as renewables and nuclear. The goal is to channel the resulting 140 billion euros in government revenue to support households and businesses facing high energy bills.
What will the proposed electricity savings look like?
Public authorities will target a reduction in electricity demand during the hours when power is most expensive. The plan includes a mandatory five percent reduction during selected pricing hours and a ten percent reduction across the hours with the highest expected prices, with member states free to choose measures that may include financial compensation. The Community Manager suggests cutting overall demand by at least ten percent until the end of March 2023. Countries such as Spain and others can decide on measures that fit their circumstances, while still ensuring that households receive support. By lowering demand during peak hours, the EU anticipates cutting gas consumption by about 1.2 billion cubic meters, which amounts to roughly four percent of winter gas usage for electricity production within the union, based on Brussels calculations.
Brussels plan to meet the energy challenge: save electricity and curb extraordinary profits of power companies
What will cap on marginal revenues mean for producers?
The European Commission expects that low-cost generation sources such as renewables and nuclear, which supply electricity to the grid beneath the price set by the most expensive marginal generators like gas, earn extraordinary profits. To address this, Brussels proposes a uniform cap on marginal income set at 180 euros per megawatt-hour. The aim is to recover the extra profits while protecting future investments in capacity and climate goals through 2030 and 2050. Revenues above the cap would be collected by governments and redirected to help consumers lower their bills. The Commission estimates this could raise about 117 billion euros and calls on electricity trading states to share a portion of gains with end users in lower electricity-generating member states through bilateral arrangements. These arrangements would come into effect when a member state’s net electricity imports are at least equal to those from the exporting country.
What is the contribution expected from fossil fuel companies?
Large oil, gas, and coal companies are projected to earn substantial profits, and a temporary contribution on excess profits in 2022 is proposed. The plan sets a minimum rate of thirty-three percent to ensure fairness and proportionality. Governments would use the revenue to support the most vulnerable consumers, fund cross-border projects, or pool resources for financing. The European Commission estimates this could yield around twenty-five billion euros across the member states.
Will the Iberian exception be affected?
The European Commission indicates that Spain and Portugal may continue to apply the Iberian gas price cap for electricity generation if it achieves the same objective as the proposed cap on marginal technologies. Revenue from the solidarity contribution by fossil fuel firms and the mechanism tied to the Congress of Deputies initiative will be evaluated to ensure the approach remains effective toward the common goal.
Von der Leyen on sanctions and energy security
How long will the measures stay in effect?
Given the urgent and temporary nature of the steps, the emergency rules would be in effect from December 1, 2022, through March 31, 2023. The Commission will present an assessment before February 28 to review supply conditions and electricity prices across the EU. The measures would remain in force for one year if fossil fuel companies participate in solidarity, with a mid-October 2023 review planned to determine the next steps. The window allows time to gauge impact and adjust policy as needed to prevent further shocks to households and businesses.
What other ideas does the Commission explore for the energy market?
The Commission is also looking to improve liquidity in the energy services market by reviewing the interim crisis framework for state aid in October, ensuring member states can offer government guarantees when needed. Energy ministers have asked for this flexibility. In the medium term, the plan includes a broader reform of the electricity market so that the current structure, dominated by gas, becomes fairer and less gas-dependent. If progress stalls, a limit on Russian gas could become part of the response.
What is the next step in the process?
Proposals will move to the Council’s technical groups. The Czech presidency has signaled a meeting of the Council of Energy Ministers on September 30 to pursue agreement on the contingency plan.
What other recommendations did the Commission put forward?
To accelerate the energy transition, the Commission also proposes creating a European energy bank for green hydrogen and establishing a basic raw materials law. The goal is to reduce energy dependence on Russia and avoid repeating past vulnerabilities with other unreliable partners for essential raw materials needed for Europe’s green strategy.