EU sets sights on energy market reform as prices soar

By Kate Abnett

BRUSSELS (Reuters) -The European Union is drafting emergency plans to intervene in its energy market as pressure grows from member states to put a lid on surging electricity prices.

European Commission chief Ursula von der Leyen on Monday said that Brussels was preparing an intervention to separate power prices from the soaring cost of gas, as well as longer-term reforms to ensure electricity prices reflected cheaper renewable energy.

The EU's 27 countries have disagreed in recent months over whether to intervene in energy markets as reduced Russian gas deliveries to Europe have pushed up power costs.

But with gas prices almost 12 times higher than at the start of 2021 and power prices setting record highs almost daily, even the most sceptical states are softening.

German economy minister Robert Habeck told a news conference on Tuesday that there are challenges with a fixed gas price cap, but Berlin and its European partners would examine a European approach to energy pricing mechanisms.

Habeck had said in a text message to other European energy ministers that Germany is open to discussing a European price cap on gas, a source who read the message told Reuters.

German Chancellor Olaf Scholz met Spanish Prime Minister Pedro Sanchez in Meseberg, Germany, on Tuesday. Spain, along with Belgium and Greece, has for months sought to cap energy prices. France has also urged Brussels to decouple gas and electricity costs.

"The structural reform of the European energy market will take several months or even years. I want this decoupling between the gas and electricity prices to be much faster," French Finance Minister Bruno Le Maire said.

EU diplomats said they were awaiting details from Brussels before their energy ministers consider the EU proposals at emergency talks on Sept. 9. Key questions include whether interventions would be restricted to the short term.

"So far we haven't seen how it will work. Is this a crisis mechanism? How will this fit legally into the [EU] treaty?" one diplomat said.

MOUNTING BILLS

In the current system the EU wholesale electricity price is set by the last power plant needed to meet overall demand. Gas plants often set that price, which countries including Spain have said is unfair because it means cheap renewable energy is sold at the same price as costlier fossil fuel-based power.

Von der Leyen met government leaders from Denmark, Poland, Finland and the Baltic states near Copenhagen on Tuesday, offering an opportunity to pitch the proposals to states wary of market reforms.

Denmark, Estonia, Finland and Latvia - along with Germany, Austria, the Netherlands, Ireland and Luxembourg - had publicly opposed intervention in energy markets last October and said the best response to short-term price spikes would be to provide national support for vulnerable consumers and businesses.

But after months of surging prices, such national measures are racking up enormous bills for governments. EU countries have spent 280 billion euros ($281.15 billion) in the past year to shield consumers from energy costs, according to think-tank Bruegel.

Spanish Energy Minister Teresa Ribera told RAC1 radio she would propose examination of whether a Spanish scheme implemented in June to cap the price of fossil fuel-fired electricity could be replicated in other EU countries.

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(Reporting by Kate AbnettAdditional reporting by Isla Binnie in Madrid, Giuseppe Fonte in Rome and Leigh Thomas in ParisEditing by Susan Fenton, Emelia Sithole-Matarise and David Goodman)