The EU to set a price ceiling for electricity at €180 MWh

The cap will apply directly to the price of electricity produced by non-gas plants

The European Commission plans to introduce a single electricity price limit for the entire market at the level of €180 MWh as part of the EU’s initial package of emergency measures to curb electricity prices. EuroNews reports about it.

According to the current rules of marginal pricing, the final price of electricity is actually determined by the price of gas. This means that power plants that do not use gas and have significantly lower production costs (wind, solar, nuclear) are making excess profits at current gas prices.

“These companies are making revenues they never accounted for, they never even dreamt of,” the President of the European Commission Ursula von der Leyen said.

The effect of a single ceiling price for the entire European Union will be a mechanism for extracting a part of these revenues and transferring them to the state. In turn, the state undertakes to transfer money to support vulnerable households or regulate tariffs.

The price cap of €180 MWh means that if a non-gas plant is selling power at €250 per megawatt-hour, the government would be able to collect €70 per megawatt-hour in extra revenue.

“Prices in the electricity market change every day so the gains are expected to vary. The days on which prices fall below the €180 per megawatt-hour, the cap would be rendered irrelevant,” the statement said.

According to the draft legislation, the restriction will apply to producers who generate energy at wind, solar, geothermal power plants, at hydropower facilities without reservoirs, using nuclear energy, biomass fuel, waste, lignite and crude oil.

According to the estimates of the European Commission, the introduction of the maximum price for electricity can bring about €117 billion of additional funds annually. However, the new rules will be in effect only until March 2023. EU member states can extend their validity if necessary.

“These measures will not affect the European industry in a positive way. The proposed mechanism for applying the price limit does not provide a reduction in wholesale prices. Instead, it is a mechanism for redistributing profits. According to it, a part of the energy companies’ income (RES, nuclear) over €180 MWh will be withdrawn by the state and directed to subsidizing tariffs for the population,” comments the chief analyst of GMK Center Andriy Tarasenko.

As GMK Center reported earlier, the European steel producers’ association, EUROFER, calls on European politicians to take immediate steps to lower energy prices. This is necessary to reduce the costs of steel enterprises and other energy-intensive industries, which lose out in global competition.

In the previous statement steel producers together with industrialists from other energy-intensive industries called on the EU to limit the price of gas, to separate electricity prices from gas prices and to adjust temporary state aid measures taking into account the current energy crisis.