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EU readies shake-up of electricity market

By CHEN WEIHUA in Brussels | chinadaily.com.cn | Updated: 2022-08-31 07:53

European Commission President Ursula von der Leyen. [Photo/Xinhua]

Soaring prices require 'emergency' action for reforms, bloc's leaders say

European Union leaders are calling for structural reform of the bloc's electricity market to tackle the skyrocketing prices that have inflicted pain on member states over the past year.

European Commission President Ursula von der Leyen said on Monday that the EU is planning an "emergency intervention" in the electricity market.

"The skyrocketing electricity prices are now exposing, for different reasons, the limitations of our current electricity market design," she told the Bled Strategic Forum in Slovenia.

"It was developed under completely different circumstances and for completely different purposes. It is no longer fit for purpose."

Her words came as electricity prices across most of Western Europe surpassed 600 euros ($600) per megawatt-hour during intraday trading on Monday, a jump of more than eight-fold from a year ago.

Von der Leyen said that the soaring prices have made emergency intervention and structural reforms necessary.

"We need a new market model for electricity that really functions and brings us back into balance," she said.

German Chancellor Olaf Scholz weighed in on the issue on Monday during a visit to Prague, saying that the question of how the European electricity market can be redesigned "so that we no longer have to bear these high prices we are currently seeing" took up much of his talks with Czech Prime Minister Petr Fiala.

Structural changes

"It is necessary for us to make structural changes that contribute to prices sinking again quickly," he told a news conference. "We will act together quickly."

Czech Industry Minister Jozef Sikela said: "We must fix the energy market. Solution on the EU level is by far the best we have."

The Czech Republic, which holds the rotating presidency of the Council of the EU for the second half of 2022, is convening an emergency meeting of the energy ministers of the bloc's 27 members on Sept 9.

Austrian Chancellor Karl Nehammer on Sunday called on the EU to decouple electricity prices from those of gas to keep them from rising further. "Electricity prices must go down," he said in a statement.

Belgian Prime Minister Alexander De Croo last week discussed a price cap on power prices with von der Leyen.

A Belgian energy ministry spokesman said that "the market is completely failing". He added: "We have to consider measures which were unthinkable before, such as a complete revision of the energy market."

Under the current EU wholesale electricity market system, all electricity producers, from fossil fuels to solar and wind, bid into the market and offer power according to their production costs. The bidding starts from the cheapest resources, the renewables, and finishes with the most expensive ones, usually natural gas.

But since most EU members still depend on fossil fuels for their energy demands, the final price of electricity is often set by the price of natural gas.

On Friday, the natural gas futures price at the Title Transfer Facility, a Europe-wide price benchmark, hit 339 euros per megawatt-hour, compared with just 27 euros a year ago.

The current system, which had been long praised for boosting transparency and promoting the transition to green energy, is now drawing widespread criticism.

Greece, Spain, Portugal, France and Italy have also called for a "decoupling" of natural gas and electricity prices to tackle the inflation burden, which many observers believe might take the bloc into an economic recession.

Greece will spend $2 billion to subsidize power bills in September, covering 94 percent of a household power-price hike, according to the country's energy ministry.

Agencies contributed to this story.

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