Kreivys: “We have to tackle the causes of high energy prices, not the consequences”

Date

2022 09 30

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European Union (EU) energy ministers today approved the proposals of the European Commission (EC) for controlling high energy prices in Europe. After intense negotiations, it took into account Lithuania’s dependence on electricity imports and provided for a separate article under which electricity-importing countries, such as Lithuania, could receive a share of surplus profits from electricity producers with lower production costs. Surpluses would be shared according to bilateral agreements with exporting countries, and the EC would mediate the process. After the regulation enters into force, the conclusion of bilateral contracts will be mandatory. EU Member States whose net electricity import dependence is equal to or higher than 100% will be required to conclude these bilateral agreements with the main exporting countries by 1 December 2022.

At the meeting, Minister of Energy Dainius Kreivys said that the adopted package is a step in the right direction, but called on the EC to immediately take the initiative in setting price caps for natural gas, as one of the components of the electricity price.

“Limiting the price of gas is the only measure that can solve the problem of high energy prices across Europe. We can achieve this with a two-step strategy. First, we cannot miss the opportunity to take advantage of low-hanging fruit. We propose acting immediately to cap the price of natural gas used for electricity generation. The second step we should take is to set a price cap for natural gas in the wholesale market. The price cap proposed by the EC is only for natural gas imported via pipeline, and does not solve the price problem or reduce the financial burden on household energy consumers and businesses. We have to look more broadly and find mechanisms for how to implement the measure for capping natural gas prices in the wholesale market, without harming the functioning of the EU market, and creating a level playing field for our businesses,” said the minister, urging the EC to immediately submit legal proposals regulating these measures and agree on their implementation before the winter season even begins.

Ever since discussions began in the EU, Lithuania has been actively advocating for the establishment of a price cap for natural gas, as this is a quick and effective way to fundamentally solve the issue of high electricity prices. This week, more than half of the Member States (15, including Lithuania) signed a joint appeal calling on the EC to take this initiative.

During the Council, the vast majority of the EU Member States expressed strong support for setting a price cap for natural gas. The countries called for urgent action and expressed their firm resolve to spare no time or effort in order to find a common EU-level mechanism for setting a natural gas price cap as soon as possible. The issue of setting a price cap for natural gas will be further discussed during the meeting of EU energy ministers on 11-12 October in Prague.

At today’s meeting, the ministers approved an urgent intervention proposed by the EC, which includes electricity demand reduction measures, a temporary solidarity contribution imposed on fossil fuel companies, and a temporary revenue cap for electricity producers with lower marginal costs; these intervention measures are expected to be approved as a matter of urgency by written procedure even before the informal meeting of the European Council on 7 October in Prague. The minister emphasised that although Lithuania’s situation regarding dependence on electricity imports was taken into account during the negotiations, implementation of the regulation will require an active role on the part of the EC and proper supervision in the countries agreeing on the fair sharing of surplus revenues.

In reducing electricity demand, EU countries have an obligation to reduce electricity consumption by at least 5% during peak hours, and to reduce the total electricity demand by at least 10% by 31 March of next year. Reducing demand during peak hours is expected to reduce gas consumption by 1.2 billion m3 over the course of the winter. The ministers also agreed that fossil fuel companies will pay a temporary solidarity contribution from surplus profits, which will be used to support energy consumers, and in particular – vulnerable households, highly affected companies and energy-intensive industrial sectors. This will be collected by the Member States from the profits accrued this year that are above a 20% increase of the average of the profits of the last three years.