Mint Explainer: EU energy ministers grope for common ground
Riven with differences, energy ministers of the European Union are meeting in Prague in search of a common strategy to deal with the energy crisis.
PremiumWith Europe in the midst of an energy crisis, Prague will play host to an informal summit of the energy ministers of the European Union. They gather to combat a host of challenges facing the Continent as winter approaches and rising energy bills threaten to hurt households.
What is the current state of the European crisis?
In a word: precarious. Households have seen massive increases in energy bills, factories are shuttering their doors, and inflation is battering economies. The UK is set to see an 80% increase in household energy bills in October while comparable increases have been seen in other countries. European automotive production may drop 40% over the next few years as operations may be disrupted by energy cuts in winter months. Industrial production has already declined. As inflation eats into household savings, demand for goods and services may crater and drag Europe into recession. The suspension and later mysterious bombing of Russia’s Nordstream 1 gas pipeline, which was a major artery of gas supply from Russia to Europe, has complicated matters.
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However, given lower demand from China and moderate weather, the price of natural gas has fallen from its peak of 349 euros per megawatt hour in August. It is now at 154 euros per mWH which is still more than four times the 38 euro/mWh price seen at the same time last year.
What is the background to the energy ministers’ meeting?
European leaders have scrambled to create a joint response to the crisis. Earlier in the year, leaders jointly agreed to achieve reductions in gas demand in order to reduce dependence on Russian energy supplies. This will prove useful as Moscow subsequently reduced and then cut off supplies for the Nordstream 1 pipeline. In September, numerous countries agreed to reduce demand for electricity during peak consumption hours so as to avoid rationing. Energy companies producing oil, gas or coal will now pay a windfall profit levy that will help defray some of the increases in household energy bills. Finally, a temporary cap on the prices of non-gas sources of energy like wind, solar and nuclear producers has also been introduced.
What are European leaders hoping to achieve at this meeting?
Leaders will discuss Europe's plans to decarbonise and develop alternative fuels such as green hydrogen. This follows major pan-Continent efforts to fund and operationalise alternative sources of energy. Countries will also discuss their respective plans for getting through the winter after Russian gas supplies to the Continent have been choked off. Progress on this has been considerable with countries announcing Europe’s gas storage was above 90% of the limit as winter approaches. A possible reform of the electricity market is also on the table as a long-term solution for the decoupling of gas and electricity prices.
What are the challenges?
However, plans to introduce a joint EU cap on the price of gas have fallen through. While a free market system currently exists, some leaders wish to create a joint front and introduce a single price that will be paid by all EU countries. Germany, in particular, has been unwilling to go along with this scheme. Berlin fears that gas suppliers will instead turn to markets in Asia rather than sell to EU buyers at a lower price. Germany has also introduced a massive 200 billion euro energy subsidy program that will provide relief for households and industries.
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