The European Commission laid out its first wave of emergency energy market interventions Sept. 14, proposing to bring down spiraling costs for EU consumers by reducing electricity demand and recouping surplus profits from generators.

Under the commission's plans, EU nations will be obliged to cut power consumption during peak hours by at least 5% as part of a targeted 10% overall reduction in demand by the end of March 2023. Meanwhile, revenues for so-called inframarginal technologies — such as renewables, nuclear and lignite — will be temporarily capped at €180/MWh and excess profits made by fossil fuel companies redistributed to help consumers with their bills.

EU power and gas prices have risen to all-time highs in recent months, largely as a result of Russia's war in Ukraine.

"[Russian President Vladimir] Putin's weaponization of energy is confronting us with increasingly unbearable energy bills that households, and especially small and medium-size enterprises, are grappling with," Frans Timmermans, executive vice president of the commission, said in a press conference detailing the proposals. "The situation is unprecedented, and so our proposals to tackle it should be unprecedented."

Since the war began Feb. 24, the EU has sought out alternative energy sources to replace its reliance on Russia, which accounted for 40% of the bloc's gas imports in 2021. That figure is at just 9% today, with flows via the crucial Nord Stream 1 pipeline into Germany suspended completely in early September.

"We have to get rid of this [Russian] dependency all over Europe," European Commission President Ursula von der Leyen said in her State of the Union address Sept. 14 in Strasbourg, France, adding that Russia's war in Ukraine is also a war on Europe's energy, economy, values and future.

"This is about autocracy against democracy," von der Leyen said. "And I stand here with the conviction that with courage and solidarity, Putin will fail, and Europe will prevail."

Gas price cap wrangling

Beyond the measures to reduce power demand and claw back unexpected profits, the commission has moved to ramp up gas storage reserves ahead of the winter and implement voluntary gas demand reduction targets across the EU.

The commission also continues to grapple with the concept of a gas price cap. The proposal was discussed at a Sept. 9 meeting of EU energy ministers, but no final decision was made. Another meeting is scheduled for Sept. 30.

Most EU member states agree on the need for a cap on Russian gas prices, though some Eastern European nations such as Hungary and Slovakia — among the most dependent on Russia for energy imports — fear being entirely cut off if such a mechanism was introduced, as Putin has already threatened.

EU Energy Commissioner Kadri Simson said the commission is examining how a uniform price cap would impact supply security while also reaching out to "trustworthy partners to work out longer-term contracts with more affordable pricing."

That will likely include non-EU members like Norway, which has replaced Russia as the EU's largest supplier of gas and whose officials have expressed concern about a price cap. Von der Leyen confirmed that a task force has been established to work through options with Norway.

"You cannot have an approach where Norway is just another supplier," said Máximo Miccinilli, senior vice president and head of energy and climate at public relations agency FleishmanHillard in Brussels. As such, the price cap needs to be drafted in a way that does not backfire on plans to diversify away from Russian imports, Miccinilli said in an interview.

Von der Leyen's speech made clear that "Norway is special," the analyst added. "Norwegians are going to see it as a win: 'They are talking to us [in a way] that they are not talking to others.'"

'Shock therapy'

Along with its emergency interventions, the commission is consulting on a wider-reaching reform of electricity markets to decouple power prices from gas prices to allow consumers to benefit from lower-cost renewables. However, reviewing such a longstanding piece of market design is said to be a mammoth task not suitable for tackling short-term volatility, with details not expected before 2023.

Before then, lawmakers aim to raise €117 billion by capping profits made by inframarginal generators, as well as €25 billion in 2022 through additional taxes on the oil, gas, coal and refinery sectors.

By going after company profits and requiring the redistribution of funds throughout the EU, the commission is stepping into a role it does not normally assume, Miccinilli said, and von der Leyen's words should be read as wartime policy.

"It's a shock therapy, to stabilize this as soon as possible and survive this winter," the analyst said.

The redistribution of funds could pose challenges, however. Miccinilli raised the possibility of companies putting up legal fights, while every member state will need to find mechanisms to ensure the excess profits are channeled to the households and industries that need it.

In targeting renewables, the commission will also be mindful of not jeopardizing its own climate goals. Swedish state-owned utility Vattenfall AB said the revenue cap "risks hindering investments into new fossil-free electricity production," though Timmermans said the measures are warranted.

"The profits [renewables generators] are now collecting go way, way, way beyond anything they have dreamed of before when making their investment plans," Timmermans said. "So it's not as though we're cutting into profits they had counted on."

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