l'Actualité du Solaire

Warning We present the articles published by various media outlets because none of them seemed to us to be exhaustive, and the understanding of the "inframarginal" mechanism seemed to us to be unclear. These articles have avoided going into too much detail in their presentation because their authors also seemed to have little understanding of the mechanism.

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In order to get through the winter without blackouts or too many blackouts, the European Commission proposed a plan on 14 September, aiming to recover 142 billion euros

of windfall profits made by electricity and fossil fuel companies. It plans to redistribute them to consumers who have seen their electricity costs rise in recent months. At the same time, the EU is to reduce its peak electricity consumption by 5%. The overall objective is to reduce total electricity demand by 10% by 31 March 2023.

Measure ¹: Exceptional reductions in electricity demand

So far, overall electricity demand in Europe has only been reduced by 2% in 2022. In August, the month with the highest prices, demand fell by only 1% compared to the previous year. Therefore, the size of the proposed 5-10% cut will be considerable, but it could ease the pressure on energy prices.

A mandatory 5% reduction in electricity consumption during peak hours is proposed. This would require Member States to identify the 10% of hours when the expected price is highest and to take appropriate measures to reduce demand during these hours. The overall objective is a 10% reduction in total electricity demand by 31 March 2023.

^2nd measure: Temporary cap on revenues for electricity producers

Electricity generation technologies with lower production costs than natural gas - including renewables, nuclear and lignite - would have their revenues capped. Some companies producing electricity from these sources have been able to generate windfall revenues in recent months as their production costs have remained relatively stable while wholesale electricity prices have surged. The Commission wants to set the cap at €180 per megawatt-hour (MWh) or €0.18 per kWh. The surplus becomes "public revenue", which will be redistributed to electricity consumers. This measure could generate €117 billion

Both measures make sense, as they aim to balance market forces while taking care of consumers. Above all, the Commission states that these measures are temporary and are intended to get through the winter. Only these measures do not address the longer term supply problems.

3°) Temporary solidarity contribution on surplus profits generated by the activities of the oil, gas, coal and refining sectors. These sectors are not covered by the inframarginal price cap. Where profits in 2022 are more than 20% higher than the average profits of the last three years, an additional tax of 33% would be levied. This measure is expected to raise 25 billion euros.

Another measure: in addition, the Commission intends to introduce emergency liquidity instruments to ensure that market participants have sufficient collateral to meet margin calls, and to avoid unnecessary volatility in the futures market.

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Rystad Energy's assessment

117 billion is unclear, as it takes into account the evolution of fossil and carbon prices, the contribution of sub-marginal sources in the electricity mix over the past year, and the impact of climate change.117 billion is not clear, as it takes into account the evolution of fossil and carbon prices, the contribution of sub-marginal sources to the electricity mix over the winter, the exposure of different technologies and countries to the spot market, as well as the evolving dynamics of the overall supply and demand situation."

"This measure has been criticised for including revenues from renewable and nuclear energy. These levies could have been reinvested in more much-needed renewables. At a time when Europe desperately needs more renewable energy, it seems strange that the EU is 'punishing' cheap, low-emission technologies. The proposal addresses this issue by setting the cap at a relatively high level, well above where prices were before the 2021-2022 energy crisis. Revenues from low-cost renewables and nuclear would therefore be significantly higher than before the energy crisis began, even with the proposed cap."

Another potential market intervention that had been discussed in recent weeks is a direct cap on electricity and/or gas prices. This would fundamentally disrupt the balance between supply and demand and would not solve the fundamental shortage of gas supply in the market. In fact, a direct price cap could make the situation worse, as it would not provide an incentive to save gas or electricity and therefore would not help to reduce the demand for electricity. In this respect, the proposed sub-marginal price cap would better achieve the EU objective, as it does not alter the fundamental balance between supply and demand and, at the same time, it provides relief from high prices to final consumers.

These levies on producers will slow down investment in renewables, and thus adaptation to the removal of Russian gas

Is a cap on sub-marginal prices better or worse than no intervention at all. It would still distort the market by limiting the profitability of low-cost electricity producers. The Commission believes that it is currently more important to ensure that consumers can pay their bills during the winter than to allow power generators to make 'super-profits'.

142 billion were invested in renewable energy generation facilities, it would create an estimated 121 gigawatts of additional capacity.If the 142 billion euros were invested in renewable energy installations, it would create an estimated total additional capacity of 121 gigawatts, equivalent to the annual consumption of Poland, which burns coal, or almost the current solar capacity of the entire EU, which is 160 GW.

Above all, this programme sets a new precedent for intervention, and may prove to be just the beginning of spending and intervention by the EU and European governments in the years to come.

https://www.rystadenergy.com/news/eu-takes-unprecedented-step-with-5-10-cut-in-power-demand-and-redistributing-eu14

Rystad Energy of 15 September 2022