[PRIMER] EU Energy Meeting on September 9th (Repost)

Analysis details (06:25)

OVERVIEW: The holder of the EU’s rotating presidency, the Czech Republic, has called for an emergency energy meeting on September 9th in Brussels to discuss a broader solution to the rise in energy prices. Power prices have been on an exponential rise in recent weeks, with French and German contracts breaching both EUR 1,000/MWh, although prices have since fallen back. Furthermore, the Nord Stream 1 pipeline has been halted by Russia indefinitely amid an oil leak, as demand for gas swells heading into winter. One-fifth of European electricity is generated by gas-fired power plants. Member states have been ahead of targets with regards to replenishing gas in storage, although analysts warn the bigger issue is whether countries can cut consumption enough to ensure the storage lasts through the most critical times of winter.

SCHEDULE: “EU energy ministers will hold two exchanges of views. During a first discussion, ministers will exchange views on possible emergency measures to mitigate high energy prices. Ministers will then present the state of play of the preparedness of their country for next winter. The second discussion will be held in a public session.” (European Council)

• 07:30BST/02:30EDT – Arrivals


• 11:00BST/06:00EDT – Public Session


• 13:30BST/08:30EDT – Press conference

(Times are estimated)

PROPOSALS: European Commission President von der Leyen unveiled a series of proposals to tackle the EU's worsening energy crisis and curb the soaring bills.

1. A mandatory target for reducing electricity use at peak hours.


2. A cap on revenues of companies producing electricity with low costs and re-channel unexpected profits to support vulnerable people and companies – a windfall levy.


3. A “solidarity contribution” for fossil fuel companies.


4. Liquidity Support for energy utility companies, an update to the temporary framework to enable state guarantees to be delivered rapidly.


5. A cap on Russian gas.

NUANCES:

1. In a draft proposal cited by the FT, the European Commission will suggest a target of reducing consumption by 10% per month compared to the same period in the last five years and will propose curbing electricity use by an extra 5% during peak pricing hours.


2. The European Commission recommends a levy on revenues generated by non-gas electricity producers when prices exceed EUR 200/MWh. Excess revenue will be redistributed to aid households and firms. The German spot price for electricity was recently north of EUR 450/MWh. Prices can be found via European Power Exchange (EPEX).


3. The “solidarity contribution” would reportedly be calculated at a national level from fossil fuel giants’ profits. Desks such as the FT noted that the Commission has avoided the word “tax” as this would require unanimous agreement from the 27 member states.


4. Firms are tackling margin calls amid the rising energy prices. Firms such as Germany’s Uniper (UN01 GY) and Austria’s Wien Energie have had to request additional loans to cover collateral in the worst-case scenarios. “European energy trading is being strained by margin calls of at least USD 1.5tln, according to Norway’s Equinor. The EU presidency (held by Czech), according to Bloomberg, is reportedly set to outline a series of options on the liquidity front: A) an urgent Europe-wide credit line for participants squeezed by margin calls, B) capping limits for margining or an automatic price ceiling adjustments, and C) temporary suspension of the power derivative market in Europe.


5. 
   Research recently estimated that Russia has made over EUR 150bln from the rising energy prices during the invasion – EU imports accounted for over 50%. To limit any further increases in Russia’s income, and despite Russian President Putin’s warnings (see below), the EU announced a proposal for gas prices to be capped – although a level was not mentioned. “At the beginning of the war, Russia’s pipeline gas was 40% of all imported gas. Today it is now only 9% of our gas imports.”, von der Leyen said.

HURDLES:

• Poland has called for the EU to prioritise other measures over windfall taxes (2) on power producers, according to the FT. The report frames it as a sign of divisions in Brussels.


• “Poland's call to reform the Emissions Trading System (4), which it blames for jacking up energy prices, was a non-starter for Luxembourg, Ireland, Germany, Finland and Sweden”, according to a senior diplomat cited by Politico.


• The Russian price cap is described as the most controversial issue – “Brussels has broadly been against the idea in its assessments so far”, Politico said. FT reported that a lack of consensus on the gas cap would mean the measure will only be discussed briefly at the meeting. A Czech minister said the gas price cap (5) should be taken off the agenda for Friday’s meeting. Hungary is also said to be against this. Politico reported that Germany remains sceptical when it comes to a price cap. Russian President Putin has spoken against the Russian cap and warned Russia will halt supplies completely. Russia has also said it will overcome the price cap by shipping more supplies to Asia.


• There were reports that Hungary wanted sanctions dropped against three Russian oligarchs, although reports later suggested that these demands were dropped.


• The issue of how the proposal above will be paid for has not yet been unveiled, this will likely be discussed on Friday.

09 Sep 2022 - 06:25- Research Sheet- Source: Newsquawk