Northerners versus Southerners: EU cannot find a solution for high energy prices

Northerners against southerners
EU cannot find a solution to high energy prices

Gas and electricity prices in Europe continue to rise. But there will be no quick reaction from the EU. At a special meeting, the ministers remain divided into two camps: southern countries are demanding intervention in the market, northern countries strictly reject this – and hope for a temporary phase.

The fronts are hardening in the dispute over how to deal with the dramatically increased energy prices in the EU. At a Special meeting the responsible minister called for comprehensive reforms at EU level in several southern countries. Germany and other northern states, however, refuse to intervene in the market.

The German State Secretary Andreas Feicht spoke out against hasty measures that could ultimately push prices up further. “It is a particularly important problem for Europe, in the midst of an economic upswing, for which extraordinary solutions have to be found,” said Spanish Energy State Secretary Sara Aagesen Muñoz.

The positions of the states are also further apart because they are affected to different degrees by the soaring prices. In Germany, for example, the price of gas has risen much less than in Spain. This is due, among other things, to the different energy mixes and the fact that Germany has concluded long-term gas purchase contracts, while Spain buys on the spot market, where prices fluctuate more strongly. According to the comparison portal Verivox, the price of electricity in Germany was around 9 percent higher in October than in the same month last year, gas was on average 28 percent more expensive.

Countries like France and Spain want to revise the system of how prices are created on the wholesale market for electricity. They hope that the electricity price will be less dependent on the sharp rise in gas prices. Then consumers could also feel the benefits of a sustainable energy mix, said Aagesen.

Germany sees temporary price increases

At the moment, the wholesale price for electricity in European markets is determined by the most expensive energy source needed – that is currently gas. If demand falls, the price will again be determined by cheap renewable energy sources. According to the EU Commission, this creates an incentive to invest in clean energy. The Brussels authority has promised to take a closer look at the electricity market and to examine proposals from Spain for joint gas purchases and gas storage.

Countries like Germany or Luxembourg, on the other hand, assume that the price increase will be temporary. They therefore want to react to this with market-based solutions. In a paper that was published shortly before today’s special meeting and is now supported by eleven countries, they speak out against reforming the electricity market.

“In our opinion, the price increases do not give any reason to intervene in the European internal market,” said State Secretary Feicht during the public debate. “Free pricing and competitive markets are a key basis for ensuring that our energy supply security continues to be at a high level, for promoting important innovations for the energy transition and for keeping energy affordable.” It is also not expedient to intervene in the EU emissions trading system, said Feicht. “On the contrary, emissions trading works. It is not the current driver of energy prices.” He contradicted Poland and Hungary, among others, who make the trade in carbon dioxide (CO2) jointly responsible for the price increase.

In the EU emissions trading system, for example, electricity providers have to pay for the emission of greenhouse gases such as CO2. The system is to be expanded as part of the EU climate package. In response to a request from some states, the European Commission now wants to take a closer look at speculation on the CO2 market. The first results are to be discussed at an EU summit in December, when energy prices are expected to be back on the agenda.

Renewables overtake fossil fuels

In the meantime, last year, for the first time, more electricity was generated with renewable energies in the EU than with fossil fuels such as coal and gas. According to a report published by the EU Commission (PDF) the share of wind power & Co. in electricity generation in 2020 was 38 percent. Fossil fuels, on the other hand, only came to 37 percent, nuclear power plants to 25 percent. According to the report, greenhouse gas emissions have been reduced by around 31 percent below the 1990 level. However, the corona pandemic also had a significant impact on this, causing economic activity and thus electricity consumption to collapse.

“While there are a number of encouraging trends, greater efforts will be required to meet the target of reducing net emissions by at least 55 percent by 2030 and achieving climate neutrality by 2050,” commented the EU Commission the numbers. The dependency on energy exports from third countries also remained high. The share of imports in 2019 reached a net 60.6 percent. According to the report, this is the highest value in the past 30 years.

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