EU regulator warns against repeat of emergency energy measures

The EU’s energy regulator has warned against a repeat of the untargeted measures that governments used to curb soaring prices during last year’s energy crisis, saying they could increase fossil fuel use and send the wrong signal to investors.

The comments come as France and Germany spar over the shape of the proposed reforms to the bloc’s electricity market and whether state subsidies should be permitted for existing power producers, such as France’s nuclear stations.

The reforms were proposed by the European Commission in March in the wake of record high energy prices following Russia’s full-scale invasion of Ukraine last year. They aim to create a stable market that can cope with the volatility of future supply shocks and the growth of renewable power.

Acer, the EU’s energy watchdog, said in a report published on Friday that broad subsidies used by governments to protect electricity consumers from high spikes in wholesale energy prices last year could trigger “overall energy inefficiency” and prevent consumers from cutting electricity usage as much as they could “by distorting or neutralising market signals”.

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It also highlighted that damping prices by subsidising bills could affect the security of energy supplies because of “an increased use of resources”.

“Member states face trade-offs in their choice of support measures in times of crisis, and beyond. It is important to strike the right balance between cushioning retail prices and preserving incentives to reduce demand,” said Christian Zinglersen, Acer’s director.

In total, EU countries spent €646 billion on emergency energy measures in 2022, according to figures from the think-tank Bruegel. Funding went towards price caps, energy saving and finding alternative fuels to the gas lost by Russia cutting supplies, Acer’s report said.

Industrial consumers in Lithuania, Latvia and Hungry were hit by the steepest price rises, while falls were recorded in Germany and France, whose governments employed their fiscal firepower to ease costs, the Acer report found.

The regulator said ultimately that the EU had to “address the challenges imposed by decarbonisation needs and by the needs to ensure security of supply at affordable conditions”.

Mr Zinglersen appeared in front of EU ministers gathered in Valladolid in Spain this week to discuss the resilience of the bloc’s electricity grids, which are becoming an increasing concern as growing numbers of renewable power generators are connected.

The electricity industry has warned that the condition of the grids will prevent more wind and solar installations being brought online as they are not able to cope with the intermittency of weather-dependent power generation.

This week, EU countries have experienced sudden price volatility, with spot electricity prices in the Czech Republic reaching €200 per megawatt hour because of high demand and little wind, while Germany and the Netherlands witnessed negative prices because of high levels of solar production overloading the grid.

The European Commission’s proposed electricity market reform is aimed at reducing the impact on consumers of such unexpected surges, but it has become stuck because of the Franco-German disagreement.

Germany is opposed to France being able to subsidise its nuclear industry and reap the industrial benefits of cheap domestic power prices, which could destabilise the bloc’s internal market.

In Valladolid, Teresa Ribera, energy minister for Spain, which holds the rotating chair of the EU member states, said Madrid had proposed a new compromise and an agreement should be reached, “the sooner the better”.

But Sven Giegold, state secretary of Germany’s economics affairs and climate action ministry, said he had received a “warm welcome by our French colleagues on the issues but there is still a way to go to have a broad compromise”. – The Financial Times