With the war in Ukraine not yet in sight and winter approaching, Europe will strengthen its ammunition to deal with the energy crisis. Member States are looking for possible solutions to avoid a “frosty” winter, at a time when energy bills are skyrocketing and Russia is increasingly turning off the gas tap. A new package is coming soon that should include measures to reduce peak electricity consumption, caps on gas prices, as well as oil companies’ famous “falling out of the sky” tax on profits. But will it be enough to cope with the coming cold months? In Portugal, experts consulted by Dinheiro Vivo believe that the current storage capacity offers room for manoeuvre. But they warn that the crisis has shown that gas dependence is a risk to energy security and that the current drought the country is experiencing could also complicate the scenario.
“Russia is manipulating our energy markets and we are facing astronomical prices,” Ursula von der Leyen emphasized this week when presenting the measures discussed by European ministers on Friday with the energy portfolio. The new package, to be implemented soon, aims to “protect consumers and businesses” from the current unprecedented crisis at a critical time, with winter just around the corner, and end the “Kremlin gas profits” that “feeding this horrific war”, he pointed out. At the end of the meeting, the Czech Minister of Trade and Industry, Josef Sikela, congratulated himself on having managed “a clear outlining the direction of the measures to be taken shortly”.
In the coming days, the concrete legislative proposals for the new package to halt rampant energy prices should be known, which will essentially work in four areas. “We will propose unprecedented measures next week for an unprecedented situation,” said European Energy Commissioner Kadri Simson at the end of the extraordinary meeting of responsible European ministers in Brussels.
The first line of action is to set limits on the profits of energy companies “with low production costs”. As von der Leyen explained, Brussels’ goal is to limit the remuneration of infra-marginal technologies used for the production of electricity to 200 euros per megawatt hour (MWh). This revenue restriction is aimed at producers who have lower costs than the technologies that dictate the wholesale market price. [normalmente o gás natural], but ultimately receive the market closing fee. Inframarginal technologies generally come from renewable energy sources, as they have no natural gas costs and thus benefit from the high prices charged by combined cycle plants.
In the future, the measure will not have a major impact on the Portuguese market, according to the president of the association representing renewable energy producers (APREN). Pedro Amaral Jorge explained to Dinheiro Vivo that in Portugal most of the renewable energy production is covered by guaranteed electricity sales tariffs (the feed-in tariffs that will be in effect until 2028) or by medium and long-term sales contracts of energy. Reasons why, he justifies, “green” energy producers in Portugal do not benefit from the high prices in the wholesale market. But he thinks the border that Brussels wants to impose is “very permissible”.
Following on from this action, Clemente Pedro Nunes underlines that Europe has made a “colossal” mistake by “reliant solely on a single raw material to insure the basis of the electrical system”, and is now “brutally paying with a geostrategic crisis” caused by the war in Ukraine”. Thus, “the marginal price of electricity becomes unaffordable at all times when the electrical system has to resort to natural gas to avoid power outages, since all productions recorded at that time are in line with the very high price set by natural gas plants”, defended the professor of the Instituto Superior Técnico de “Iberian exception” and it will be the extension of this mechanism implemented by Portugal and Spain “to the whole European Union what Ursula Von der Leyen probably thinks to do now” with this new proposal.
Profit fell from the sky
The second area that has generated consensus among ministers is the implementation of a solidarity contribution from fossil fuel companies, which will be used to mitigate the rise in energy prices. In other words, the much-discussed tax on excessive profits by companies in the sector is back on the table.
Around here, António Costa management has always rejected the “windfall tax” for electricity companies, arguing that the Iberian gas cost decoupling mechanism introduced on June 15 is already having this effect. But the possibility of applying this tax on profits “falling out of the blue” to the oil sector – including companies like Galp – is not entirely out of the question.
The third solution that the ministers advocated with the energy portfolio of the 27 was the introduction of a liquidity mechanism for energy production companies that have to deal with market volatility. The measure, which is to be run through financing lines, will be studied together with the European Central Bank. In Germany, for example, the gas company Uniper has already received government support.
The most controversial proposal, which has been canceled for the time being, was the introduction of a maximum price for Russian gas and oil. Fears of further reprisals from Vladimir Putin have led ministers to conclude that the measure needs to be deepened. In fact, on Wednesday, a few hours after the European Commission president put forward this hypothesis, the Russian head of state again threatened to cut off oil and gas supplies if prices were limited. Although European imports of Russian gas have fallen from over 40% to 9%, there are still some countries that are highly dependent on Russia, such as Germany.
save, save, save
Finally, Europe’s fourth line of action to tackle the rise in energy prices and avoid a winter break is to expand energy consumption reduction plans to increase energy reserves. On the table is the reduction of electricity consumption during peak hours, i.e. during periods when there is more demand, usually in the morning and late afternoon, and for these reasons this usually leads to higher wholesale prices. The aim is to shift consumption to other times of the day when prices are less under pressure. This measure is comparable to the previously approved 15% reduction in gas consumption. In recent weeks, Member States have presented energy saving plans in this regard. The Portuguese government approved the draft national strategy on Thursday, but the concrete plan has not yet been presented.
The implementation of these plans has contributed to the increase of gas reserves in Europe, which currently stand at 83%, above the 80% target set for November. Portugal has 100% reserves, but with winter approaching, will the stored capacity, lower than the average of other countries, be sufficient?
João Peças Lopes does not expect there to be any supply problems “as long as primary sources are available”. excluded that there may be problems with the supply of electricity”.
For Clemente Pedro Nunes, the problem is not physical supply constraints, but prices. “In terms of electricity and natural gas, our networks are very well connected to Spain. For example, it should be noted that Portugal has imported huge amounts of electricity from Spain in recent months, so the problem will probably be mainly with the price level. And then yes, I fear that many industries and companies will be forced to suspend/terminate their activity in the coming months because they cannot bear the energy costs,” said the energy specialist.
Artur Patuleia, in turn, emphasizes that “the crisis has shown that gas dependence poses a risk to energy security”. For these reasons, the researcher from the E3G think tank, specializing in climate change, warns that “in addition to short-term adjustments in the electricity market, it is crucial that Member States take an ambitious and structural perspective to reduce energy consumption.” . In other words, the discussion should not be limited to specific interventions in the market in the short term, but the problem of gas dependence should also be addressed. With regard to Portugal, he emphasizes that “it is important that support to the economy not only protects existing industrial capacity, but also takes into account the necessary adaptations to decarbonise them and to develop the value chains of alternative solutions to fossil fuels” .
Source: DN
