Tue. Oct 19th, 2021


France and Spain have joined forces to demand urgent changes to EU energy market rules in the face of “unbearable” electricity price increases that hit consumers and drive up inflation.

The calls from Paris and Madrid for reform come after a rise in gas prices that fuels fears of a winter crisis in the EU.

“The EU energy market is not suited to what we want to achieve,” Bruno Le Maire, France’s finance minister, told a eurozone finance ministers’ meeting in Luxembourg on Monday. ‘It’s time to look at the European energy market. This has a major drawback: the adjustment of electricity prices to gas prices.

Le Maire said the crisis was “unfair, inefficient and costly” for citizens and businesses. He said he and his Spanish counterpart, Nadia Calviño, would ask the European Commission for better regulation of the natural gas stocks in the bloc and a reform of EU rules to reduce price volatility.

The EU Common Energy Market was established in the 1990s to liberalize access to the electricity supply market and ensure a degree of price harmony. Governments retain full control over their national energy mixes.

Spain has been calling for a change in the EU’s marginal pricing system since July – in which rates are set by the highest prices national networks are willing to pay. Last month, it required a general EU approach, including the purchase of natural gas to counteract the market power of suppliers and build up strategic reserves.

“European challenges require a European response,” Calviño, the number two in the Spanish government, said in an FT interview before the meeting.

She argued that a strategic gas reserve “would learn the lesson from the response to the pandemic and the centralized purchase of vaccines”.

She turned back against the challenge of electricity companies against Madrid’s € 3 billion levy on their ‘profitable profits’ – one of the left-wing government’s main responses to the crisis. Madrid says the funds will be used to lower consumer prices – currently increased by high gas and carbon costs – but utilities say the move could deter green investment and violate EU law.

“It is essential that this increase in wholesale prices is not fully passed on to the customers and to the businesses, and therefore we must use all possible legal instruments to reduce the elements of the energy bill,” Calviño said. She added that the Spanish levy, most of which has already become law, “absolutely and fully complies with EU law”.

In Spain, where electricity tariffs paid by more than a third of households are linked to high spot prices, the energy crisis has dominated the political agenda for months.

But the price rises have exacerbated the sense of urgency elsewhere in the EU, and some leaders have called on the bloc to reconsider the carbon-saving plans that could further increase pressure on households.

Brussels is resisting demands to change its rules on electricity prices, with officials believing that much of the price increase will disappear in early 2022. However, the commission will soon publish a paper outlining what options governments have for tackling the crisis.

Officials told the FT that the European Commission is assessing whether government measures responding to the price increases are in line with the EU electricity market and state aid rules.

One EU competition expert said Spain’s illegal profit assessment would be judged to see if it had unfairly targeted some businesses and sectors, thus violating the bloc’s state aid rules.

The crisis has divided EU governments, with some in Northern Europe arguing that rising prices should not be an excuse to derail the bloc’s path to net zero emissions by 2050.

Outside the EU, numerous UK gas suppliers have ceased operations due to price caps.

In a further sign of concern over the issue, José Manuel Albares, Spain’s foreign minister, traveled to Algeria last week, traditionally the country’s largest gas supplier, to obtain assurances that it would supply Spain at market prices. , despite the planned closure of a pipeline running via Morocco.

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