“Check against delivery”
Madame President, Honourable Members,
After steadily declining for more than a decade, energy prices are once again making headlines in Europe. Gas prices reached record-breaking highs in October. Electricity wholesale prices surged by more than 200% in the first nine months of this year, driving up retail prices.
This sharp rise is the result of a combination of factors. The world economy has started to rebound after the pandemic and is hungry for energy, most notably in Asia.
At the same time, Europe’s gas supply has tightened. An unusually cold winter and spring last year depleted the gas storage in Europe. Then, over the summer, maintenance work on gas pipelines, delayed by the pandemic, reduced deliveries. LNG supply was hampered by technical problems and lower investment. Europe’s domestic gas production has also decreased.
While long-term contracts from Russia are respected no extra capacity was booked, despite the rising prices, exacerbating the tight balance.
To make things worse, less wind than usual in Western Europe and less hydropower reduced the available amount of renewable energy. The carbon price has also increased steadily due to economic recovery and greater use of carbon intensive fuels, but this explains only a limited part of the electricity price increase.
All of this has driven up gas prices across the globe and created the ingredients for an abrupt price surge in Europe.
Market expectations indicate that this is a temporary situation, but gas prices will remain high throughout the winter and should gradually decrease from Spring next year based on current demand forecast. Gas underground storage is above 75% across Europe. This level is lower than the ten-year average. It is tight but adequate to cover the winter season needs. The evolution of the winter season is a key variable to watch closely.
This price shock cannot be underestimated. It is hurting our citizens and in particular the most vulnerable households, weakening competitiveness and adding to inflationary pressure. If left unchecked, it risks compromising Europe’s recovery as it takes hold.
There is no question that we need to take policy measures.
Europe has gone through high energy prices many times in the past and responded to them through diversification of supply sources and market integration.
Today, the price rise happens while a profound transformation of the energy system is underway. We need to design a fair and forward looking response.
We have to be clear. The current price hike has little to do with our climate policies and much to do with our dependence on imported fossil fuels and their volatile prices.
The Green Deal provides the only lasting solution to Europe’s energy challenge: more renewables and improved energy efficiency. Wind and solar have continued to generate the cheapest electricity in Europe in recent months. They are not exposed to price volatility.
Some are pointing at the European electricity market design as a part of the problem. Yet, when demand and prices are high everywhere in the world, it is impossible for the EU to be immune. The best response to the price challenge is to progress faster towards our target goal of 65% of renewable electricity by 2030.
The electricity market design is tailor-made to deliver more renewables and cheaper energy to all consumers and to enhance cross-border integration.
Last year, Member States with the highest share of renewables in their mix had the lowest wholesale electricity prices, with several cases of negative prices on the day ahead market.
We believe this framework is sound, but we see the challenges. We are ready to launch a study with ACER on the current electricity market design and its ability to deliver a lower-cost and secure transition to a net-zero energy system.
So what can be done now?
In the Commission view, Europe must respond by delivering swift coordinated action at Member States level, by leveraging the strength of its single market and by increasing its preparedness for future crisis.
The Commission will present next week a toolbox of measures Members States can take in line with EU law, both short and medium term.
Providing targeted support to consumers, direct payments to those most at risk of energy poverty, cutting energy taxes, shifting charges to general taxation, are all measures that can be taken very swiftly, under EU rules.
The immediate priority should be to mitigate social impacts and protect vulnerable households, ensuring that energy poverty is not aggravated. Higher than expected ETS revenues provide space for doing so.
Business and in particular SMEs can be given relief through state aid, or by facilitating longer-term power purchase agreements.
Second, we need to ensure that markets work in a fair and transparent way. Competition authorities and national regulators with ACER have a role to play in market surveillance and prevention of uncompetitive practices. Protecting consumers, including by preventing disconnection, and supporting self consumption and energy communities is also key.
Finally, it’s essential to strengthen Europe’s preparedness and resilience to price hikes.
We need to invest in flexibility and storage to integrate more variable renewable energy in the electricity market. We need well functioning and liquid gas markets in the transition, ready to integrate growing shares of renewable gases.
By the end of the year, I will propose a reform of the gas market, and will review in that context issues around storage and security of supply.
More ideas have been put forward by the Member States and members of the Parliament, such as forms of joint purchase of emergency gas reserves. We are analysing all of them.
We need also to remain mindful of the importance of the geopolitics of energy and develop a more strategic approach to external energy policy.
This price shock is an unexpected crisis, at a critical juncture. We must respond together and stay to the course towards a cleaner, more secure and more affordable energy future.
Thank you for your attention, now I’m looking forward to hearing your views on this important topic.
Thank you for your views, I have listened to your interventions very carefully, this is valuable input for our work.
Let me assure you that the Commission fully agrees with your assessment: we must take the rising energy prices and energy poverty seriously and we must act. As I said earlier, the Commission will present next week a toolbox, as requested by the Member States. We are looking at all the options and ideas on the table.
Allow me to address some of the specific points that were made during this debate.
Most of you have called for priority attention to the energy poor and low income households. I do agree. There were already millions of Europeans living in energy poverty before the price hike, and more, including middle-income households, will be impacted if this situation continues.
EU rules give Member States several options to shield vulnerable people.
They can offer direct income support and make sure that no-one is disconnected from the grid. And extra fiscal revenues from energy taxation or EU ETS revenues can be used to address the social impact. We assess that Member States received in the first nine months of 2021 additional €10.8 billion in ETS-revenues compared to the same period in 2020.
For the medium term, we have proposed a Climate Social Fund for a more structured response to address the social and the distributional impact on the most vulnerable of the energy transition. We will present by the end of the year a Recommendation to provide policy guidance that is needed to ensure that Member States adequately address the social and employment consequences of the clean energy transition.
Some of you raised the issue of the electricity market design and suggested the need for adjustments. There are no taboos, But we shouldn’t forget that the EU energy system is the most reliable in the world and the design of our electricity market is not the cause of the surge in electricity prices.
Since we have integrated the market, we have had less blackouts and supply interruptions and consumer prices have been very stable.
There is no alternative market model that would provide lower prices in the current situation. What we see now is prices going up and energy supply being a challenge all over the world. As I said, it could be useful to launch a study on price formation and investment incentives in the electricity market.
Overall, a well-integrated, well-functioning EU electricity market, with more competition, more renewables, and more energy efficiency, is our best tool to deliver affordable energy to European consumers.
Coming to specific EU-level measures, one area we are looking at very closely is gas storage and procurement.
While gas storage levels in the EU are increasing, they are still lower than usual at this time of year. Joint procurement of gas has been proposed recently by Spain and also suggested by others. It’s not a new idea and has been discussed before, but complexity and practical obstacles have always outweighed the benefits.
Similarly, the idea of a joint procurement of emergency gas reserves on a voluntary basis has been proposed.
We assess all these options, to increase preparedness while gas, as a transitional fuel, is progressively phased out.
I know that some of you are concerned about possible manipulation of the EU energy market and these are serious concerns.
We are looking into this claim, through our competition angles. Our initial assessment indicates that Russia has been fulfilling its long-term contracts, while not providing any additional supply.
Better response to any type of speculation and market manipulations is another area where I believe we should assess our options for action.
But ultimately, the solution is the same, whether it’s about prices, security of supply or climate: scaling up local, affordable, renewable energy is the way forward.
I would prefer to be in a position where we aren’t dependent on foreign fossil fuels.
I will share your concerns and suggestions for action with President Von der Leyen and the College and we will reflect them in our Toolbox Communication next week. I will present it and discuss it with the ITRE Committee the following day, continuing the dialogue we have had just today.
Thank you for your attention.