Energy prices and security of supply

What are EU countries doing to address the energy crisis?

The current hike in energy prices and disruptions to energy supply are top concerns for EU leaders and the Council. EU countries are united and are closely coordinating measures to respond to rising prices and imbalances in the energy market.

Unity among EU member states is essential to face the energy crisis. Working together is the best way for EU countries to better mitigate the impact of the crisis and reduce risks. For instance, joint purchases of energy can reduce costs of imports.

In the current context of high uncertainty of energy supply and delivery interruptions by Russia, solidarity among EU countries is also needed for providing support to those countries that are more dependent on Russian energy and therefore more affected by any supply cuts.          

The main goals of the EU’s response to the energy crisis are to:

• ensure affordable and competitive energy for EU consumers
• increase the EU’s energy security and preparedness in the event of emergencies
• strengthen the energy resilience and autonomy of EU countries

To this end, EU countries are working together on:

• cutting energy costs for households and businesses
• reducing the EU’s energy dependencies
• securing gas supplies
• accelerating the green transition

 

Cutting energy costs for households and businesses

High energy prices are taking a toll on EU consumers – be they families or companies. EU coordinated measures are urgent and necessary to alleviate consumers from the increased costs.

In September 2022, EU countries adopted an emergency regulation to address high energy prices and help citizens and businesses that are most affected by the energy crisis. The rules were adopted in record time. 

The regulation includes three emergency measures:  

• reducing electricity use 
• capping revenues of electricity producers 
• securing a solidarity contribution from fossil fuel businesses  

The reduction of electricity consumption is expected to have a positive effect on the EU electricity prices and as a consequence on consumers’ energy bills. EU countries will reduce the overall use of electricity by at least 5% during peak hours, which will cut demand for gas used in power generation and hence help lower prices.  

The new rules will allow member states to collect funds from the surplus profits of the energy sector and redistribute these to the most vulnerable people and companies in the EU, providing direct support to those struggling to pay their bills.  

The new rules are exceptional and temporary. They will apply from 1 December 2022 to 31 December 2023. 

Reducing the EU’s energy dependencies

At an informal meeting of heads of state or government in March 2022, the leaders of the 27 EU member states jointly decided to phase out the EU’s dependency on Russian fossil fuels, in the light of Russia’s invasion of Ukraine and of the EU’s climate goals for 2050.

With the Versailles Declaration adopted at the meeting in March, leaders agreed to progressively cut imports from Russia by:

• reducing the overall reliance on fossil fuels
• diversifying energy supplies and routes, including for liquefied natural gas (LNG)
• speeding up the development of renewables and hydrogen
• improving interconnections between EU energy networks
• increasing energy efficiency

In 2020, more than half of the total energy available in the EU came from imports, with Russia as the main supplier of fossil fuels to the EU. 

Reducing the EU’s dependency on Russian fuels is key to strengthening the EU’s energy resilience and autonomy, especially in the event of energy shortages, and also provides an opportunity to accelerate the shift towards renewable energy sources.

In response to the leaders’ call for a plan to implement their decision on Russian imports, the Commission presented the REPowerEU plan in May 2022. Under the plan, the EU has established the voluntary EU Energy Platform, which supports coordinated common purchases of energy for all EU countries and some European partners.

New agreements on energy supply have been reached with international partners:

• the United States and Canada have increased deliveries of LNG to the EU
• Norway is providing more gas
• a memorandum of understanding for increasing gas deliveries was signed with Azerbaijan
• new deliveries are planned from Israel and Egypt

• Informal meeting of heads of state or government, Versailles, 10-11 March 2022
• Transport, Telecommunications and Energy Council (Energy), 27 June 2022
• REPowerEU: affordable, secure and sustainable energy for Europe (European Commission)

Securing gas supply

As gas supply deliveries become less predictable – with Russia stopping delivery to a number of EU countries, the Council took urgent measures to:

• secure supply of gas for the winter
• cut gas demand in the EU

In June 2022, the Council adopted a new regulation on gas storage which aims to ensure storage facilities are filled before the cold season: underground gas storage on member states’ territory must be filled to at least 80% of their capacity by 1 November 2022 and to 90% by the subsequent winters. 

The new rules also establish solidarity arrangements between member states to help those countries that do not have storage facilities on their territory. These countries should store 15% of their annual domestic gas consumption in stocks located in another member state.

The regulation also provides for compulsory certification of all underground gas storage site operators to avoid the risk of external interference.

By 27 September 2022, most EU countries had managed to store the required level of gas in their reserves – EU average = 88%. 

• Council adopts regulation on gas storage (press release, 27 June 2022)

On 5 August 2022, EU countries agreed to reduce the overall gas demand in the EU by 15% in the period between August 2022 and March 2023. The decision was adopted in record time, since the Commission had presented its proposal just two weeks before, on 20 July.

Under the new rules, EU countries agreed to take measures – defined at national level – to cut demand in gas for a specified period. The reduction is voluntary but, should gas supply disruptions make it necessary, the Council could activate an alert mechanism, on the basis of a Commission proposal, obliging EU countries to make cuts. In such a scenario, some exemptions would apply depending on countries’ circumstances. 

The law establishes that countries are to prioritise measures which do not affect households or essential services, such as hospitals.  

Making energy use in the EU more efficient also contributes to saving energy. The Council is currently working on new rules in the Fit for 55 package which will increase the EU’s targets for energy efficiency by 2030.

• Council adopts regulation on reducing gas demand by 15% this winter (press release, 5 August 2022)
• Fit for 55: how the EU will become more energy-efficient (infographic)

Accelerating the green transition

EU countries are committed to the goals of the European Green Deal to cut EU greenhouse gas emissions and achieve climate neutrality in the EU by 2050. This requires an overhaul of the EU’s energy system and the replacement of fossil fuels by cleaner forms of energy.

The green transition will lead the EU towards:

• lower reliance on fossil fuels
• reduced energy dependencies
• a cleaner environment and improved health

Renewables are key to the energy transition. They are the cheapest and cleanest form of energy available and can be used to generate energy within the EU, helping reduce dependence on energy imports.

In June 2022, EU countries agreed a Council position (‘general approach’) on the Fit for 55 package – the EU’s plan to convert the European Green Deal goals into EU law. New rules, which are currently under negotiation with the European Parliament, will speed up the availability of alternative renewable energy sources and support energy efficiency.

• Fit for 55 (background information)
• Clean energy (background information)

At national level, EU countries are taking measures to provide relief to citizens and businesses facing higher bills for energy use, partly following the EU’s guidelines from the energy prices toolbox presented by the Commission in October 2021 and the EU state aid temporary crisis framework.

• Energy prices (European Commission)
• State aid temporary crisis framework (European Commission)

Why are energy prices high?

Since the second half of 2021, there has been a sharp hike in energy prices in the EU and worldwide. While this was expected to some extent in the context of the post-COVID-19 economic recovery and the relaxation of travel restrictions, energy prices have increased more than anticipated.

The price rise which started in 2021 has continued through 2022 and has been further aggravated by the military aggression by Russia against Ukraine.

A number of factors have contributed to the rise in prices since 2021:

• the unprecedented increase in gas prices on the global markets (more than 170% increase in 2021) and in the EU (more than 150% increase between July 2021 and July 2022)
• extreme climate conditions, including summer heatwaves across Europe which push up energy demand for cooling and add pressure on electricity generation
• increased demand for liquefied natural gas and a consequent spike in its price
• greater consumption of gas in Asia due to the economic recovery
• recent scarcity of nuclear and hydropower electricity generation, partly as linked to climate conditions

During 2022, Russia has unilaterally decided to stop gas supply to a number of EU countries which has increased uncertainty of supplies and also pushed up the price of gas to a record high. Skyrocketing gas prices have caused a steep increase in electricity prices, due to the current functioning of the EU energy market.  

• Impact of Russia’s invasion of Ukraine on the markets: EU response (background information)