By Kate Abnett BRUSSELS, March 5 (Reuters) - Governments of seven EU countries, including the Netherlands and Sweden, warned the bloc's executive on Thursday against interfering with the system that
Seven EU Nations Caution Against Overhauling Energy Market Design
EU Governments Warn Against Changes to Energy Price System
By Kate Abnett
BRUSSELS, March 5 (Reuters) - Governments of seven EU countries, including the Netherlands and Sweden, warned the bloc's executive on Thursday against interfering with the system that sets Europe's energy prices, as officials in Brussels scramble to find ways to bring down bills.
Political and Economic Context
Energy prices have lurched onto Europe's political agenda this year, as industries warn they cannot compete with companies in the United States and China, where bills are lower. Soaring global oil and gas prices due to the Iran conflict have increased pressure on the European Commission to step in.
Commission's Response and Challenges
President Ursula von der Leyen has pledged to assess whether the EU's current price-setting system should be revised, and the Commission is drawing up options to attempt to curb energy prices. But analysts and officials say there is no quick fix.
Concerns Raised by Seven EU Countries
In a letter to Energy Commissioner Dan Jorgensen, seen by Reuters, seven EU governments warned that changing the system which underpins Europe's energy market would lead to a less efficient mechanism and ultimately increase bills.
Risks of Market Intervention
"Intervening in the electricity market design and changing price formation mechanisms would also increase market and regulatory uncertainty, which is harmful for investments and European competitiveness," the letter said.
Dated March 5, the letter was also signed by the energy ministers of Denmark, Finland, Latvia, Luxembourg and Portugal.
How the EU Electricity Market Works
Role of Gas Plants in Price Setting
GAS PLANTS SET POWER PRICES
The EU's electricity system is designed so that the last power plant needed to meet total demand sets the power price. Often, that is a gas plant - so gas price spikes can send electricity prices soaring, even when much of the power is being produced from cheaper renewable sources.
Root Causes of High Prices
The seven countries said "the EU dependency on expensive, imported gas" is the root cause of high prices, and not the power market design.
Proposed Solutions and Policy Recommendations
The signatories urged Brussels to instead expand cheaper renewable energy sources faster to limit the price-setting role of gas in the power mix, and increase measures that encourage consumers to use energy when prices are low.
Policy Divisions Among EU Members
Clash with Other Governments
The letter sets up a clash with governments including Italy, which has announced national plans to remove carbon costs from gas power plants' bills - an intervention that would upend the price-setting system.
Differences in National Energy Profiles
The signatory countries are largely wealthier EU members, and include Sweden and Finland, who have the lowest power prices in the EU. Both produce more than 90% of their electricity from low-carbon sources - a stark difference from others including Poland, which gets most of its electricity from CO2-emitting coal.
(Reporting by Kate Abnett, editing by Andrei Khalip)
