European Council conclusions on energy prices

March was an extremely busy period for energy policy with a series of major developments and breakthroughs leading to a radical change in EU’s approach on security of supply and decarbonization.These were most recently discussed by Heads of State during the European Council meeting on 25 March.

As part of the agreed conclusions, Member States asked the Commission to submit proposals to tackle excessive electricity prices while preserving the Single Market; in this context, the Commission will urgently assess the compatibility of emergency temporary measures in the electricity market notified by Member States, including to mitigate the impact of fossil fuel prices in electricity production, with the provisions of the Treaties and the Electricity Regulation; in its assessment, the Commission will make sure that the proposed measures reduce spot prices without affecting trading conditions to an extent contrary to the common interest. Interventions to directly reduce market prices were strongly requested mostly by a group of Southern European countries led by Spain, which faced a staunch opposition from Germany and other Nordic countries. The wording agreed in the conclusions reflects a compromise between the two blocks: while it does not immediately allow for market interventions, it tasks the Commission to urgently assess this option and set the conditions for this measure.

On the same topic, EU leaders also invited the Commission to propose by May 2022 all the necessary initiatives to optimise the functioning of electricity markets, based on the final ACER report.

Regarding gas storage, Member States tasked the Council to examine the proposals by the Commission (see following paragraphs) and stressed the need to start the refilling of gas storage by working together on voluntary common purchase of gas, LNG and hydrogen, making optimal use of the collective political and market weight of the European Union and its Member States to dampen prices in negotiations. The need for improving gas and electricity interconnections throughout the EU, including full synchronisation of power grids, was also reflected in the Council conclusions.

Last but not least, Heads of State reaffirmed their commitment expressed in the Versailles Declaration to phase out EU’s dependency on Russian gas, oil and coal imports. In this regard, the Council looks forward to the Commission’s REPowerEU Plan (see following paragraphs) planned by the end of May 2022.

EU-US deal on LNG supplies

On the same day the Commission managed to strike a deal with the US on additional LNG supplies. Through the establishment of an EU-US Joint Task Force on energy security jointly announced by Commission’s President von der Leyen and US President Joe Biden, the US will strive to ensure additional liquified natural gas (LNG) volumes for the EU market of at least 15 bcm in 2022 with expected increases going forward. To increase LNG imports overtime, the Commission will work with Member States to accelerate their regulatory procedures to approve LNG import infrastructure and to pool demand through a newly established EU Energy platform for additional volumes between April and October 2022. More efforts will be done by the Commission and Member States to ensure stable demand for additional US LNG until at least 2030 for approximately 50bcm/annum. While not binding, the statement gives a clear indication of the EU’s shift in its approach on energy security.