A controversial proposal was drawn up in the EU to reduce electricity prices: Lithuania is not happy even after receiving an exception
At the end of September, the Council of Ministers of Energy approved proposals to take a closer look at electricity production and profits (given that in the EU, expensive gas electricity generation is currently “putting up” green energy pajamas on the stock exchange).
The proposal includes the so-called infrared electricity generators (eng. infra-marginal electricity producers) determination of the unplanned income limit, otherwise known as a tax on excess profits (unexpected charge), but EU proposals avoid this term for possible political or legal reasons.
The initiative would touch the following types of energy production: renewable energy resources, nuclear energy, brown coal (lignite). In the community, it is proposed to set a limit of 180 euros per megawatt hour, above which the profit would be shared.
The representatives of Lithuania themselves are skeptical about this proposal, because electricity production in the country is rather small.
Energy expert Vidmantas Jankauskas says that this would not be a great achievement for Lithuania in the EU negotiations.
“I think that we have left very little here, because think about what we are talking about now: about the fact that we will talk to the Swedes, although we do not only get electricity from Sweden, we get it from Latvia, where a lot of electricity is also produced in hydroelectric plants.
It is the principle of price capping that should be applied, after all, to renewable, nuclear and lignite burning. If we consider that sometimes we also buy from the Poles, we should still negotiate”, says the expert.
According to him, even if the discussion is narrowed down to Sweden alone, it will be seen that the situation will probably not benefit Lithuania.
“Let’s say we only talk to the Swedes, because we buy from them the most. But now let’s discuss what was agreed: first, not all of them are sold to the stock exchange, but parts of them just go. What comes on the stock exchange and what comes to us by cable, Lithuania does not necessarily buy everything: some goes to Latvians, some – probably to Poles.
So we should evaluate all this. And the fact that now the prices in Sweden have stabilized at that limit – no more than 200 euros per megawatt hour, the difference is very small (from the proposed “ceiling” – ed.)”, says V. Jankauskas.
He added that the measure is temporary. And although it is not clear what the prices will be on the electricity exchange in the future, if there are no shocks, it may happen that they will sometimes decrease.
“Then nothing will come of it at all. From all this, we can see that there will not be such a big benefit here, it is not certain what Lithuania will get from it”, he states.
During the night from Friday to Saturday in Sweden’s 4th price zone, some fixed and negative prices, on October 8 the average wholesale price is 7.46 euros per MWh.
The Ministry of Energy said at the beginning of September that such a measure created an unequal playing field for business enterprises due to the level of support of many states. Later, the ministry noted that after intensive negotiations, Lithuania’s dependence on electricity imports was taken into account and a separate article was provided, according to which electricity-importing countries, including Lithuania, could receive more surplus profits.
These would be shared according to bilateral agreements with the exporting countries, and the process would be mediated by the EC. Bilateral contracts will be mandatory. EU member states, more than 100 percent. dependent on electricity imports, and at the same time the main electricity exporting countries will be obliged to make such bilateral agreements by December 1.
Between September last year and September of this year, the limit of 180 euros per megawatt hour was exceeded several times in the region, but according to Euronews, the daily price will be calculated: and since the prices change daily, the income from this measure will be constant. For example, one day the price will be 220 euros per MWh, the state will take 40 euros per MWh, but if the price on the stock exchange drops to 180 euros, it will not work above the profit tax at that time.
Infographic: a) 12-month electricity price average for countries in the region, b) Swedish SE4 price extremes on two most days
Economist Raimondas Kuodis claims that the European Union is now leaving the countries to solve systemic problems by themselves.
“Unfortunately, the European Commission is throwing us into a regime where lachatron is so pan-European, and they are looking for solutions separately – Lithuania has to negotiate with Sweden, Denmark with Germany. Negotiations will take a lot of time, many parties will have to sit down at some negotiating tables, there will be some surplus profits, how to take them.
So Europe has brought us to a point where there really will be plenty for businesses unless we come up with some kind of quick national measures. I hope that the government will come up with something,” said R. Kuodis in the DELFI TV show “Iš šeše”.
Former Vice Minister Rom Švedas says that it is necessary to hope that after finding an agreement with Sweden, the energy sector will determine the specific benefits of such decisions, the public will be informed, all amounts and their calculation will be explained.
“In practice, there were no such things, here it is for the first time. But my experience with the Swedes shows that they are rational people who accept arguments and people who can be trusted and agreed with,” said R. Švedas, a lecturer at the Institute of International Relations and Political Sciences of Vilnius University.
The Ministry of Energy, when asked whether there are preliminary calculations on how much the country could benefit from these measures, said that it cannot comment on anything now, except for what the minister said: regardless of the reservation for Lithuania, in the minister’s opinion, the problem of high energy prices is basically solved by gas price capping.
Lithuania actually hopes more that restrictions on natural gas prices will be accepted. The European Commission (EC) announced this week to discuss it.
Oxfam, a confederation of independent charities based in England, says the European Union should set more ambitious goals and tax profits at 50-90 percent. The organization’s experts estimate that the world’s 1,000 largest companies (not only energy companies) recorded 1.15 trillion in 2020 and 2021. unplanned profit of US dollars, compared to the pre-pandemic period – that’s 68.5 percent. growth
According to Oxfam, 1 trillion could be raised globally. one, if the excess profit of those companies was taxed at 90 percent.
For their part, economists at ING Think in the Netherlands cite several potential risks associated with peaking, including:
1. Electricity “leakage”: producers can try to sell electricity in markets outside the European Union (say, Norway, the United Kingdom) – markets that are well connected by cables.
2. Producers can start to avoid place trading: for example, would decide to sell at a price higher than 180 euros per MWh through a long-term direct contract (eng. electricity purchase agreementPPA), in the latter case essentially bypassing the exchange.
3. Litigation: Market intervention may provoke some producers to try to succeed in court.
Solidarity contribution, or another excess profit tax
EU energy ministers also agreed last week to introduce a temporary mandatory contribution from companies in the crude oil, gas, coal and oil industries.
Their contribution would be calculated from the taxable profit for the financial years starting in 2022 and/or 2023. He should have more than 20 percent. exceed the average profit of the last four years. The percentage of profit on the contribution would be 33 percent, according to Reuters. This facility will be used to support households and businesses to ease the burden of high electricity prices.
“It would be intended to support those small, vulnerable consumers in their own country, for their own consumers. So what are we congratulating here? Nothing. Oil production in Lithuania is so small that probably no one knows that we have a lot of it”, says V. Jankauskas.
According to oil refining in Lithuania, if you can learn, you can also profit.
“This time, they really don’t earn anything, especially since the problems are when they switched from Russian oil to Saudi Arabia, it is even more difficult to compete,” V. Jankauskas said.
The company “Orlen Lietuva” announced that it worked profitably for the first quarter of this year, but in the second quarter the net loss of the group was 209 million. US dollars (211 million euros at current exchange rates) (a year ago in April-June the loss was 12 million euros (12.14 million euros).
In the European Union, a total of 140 billion is expected to be collected from both measures – both non-gas electricity generation and limiting the unplanned income of fossil fuel companies. euros.
By the way, the Council agreed that member states can temporarily determine the price of electricity supply reduction and medium-sized enterprises.
Demand reduction and calls for savings
Another measure in addition to those already discussed is reducing or saving electricity demand. EU countries are required to reduce electricity consumption by at least 5 percent during peak hours, and by at least 10 percent of total electricity demand by March 31 of next year. Reducing peak demand is expected to reduce gas consumption by 1.2 billion over the winter. cubic meters, the Ministry of Energy reports.
As already announced, at the beginning of September, the Government proposed to the population, business and the public sector and self-government to take urgent savings measures in order to save 20% within two years. energy and 800 million euros. The measures are short-term and long-term, they are aimed at changing habits, updating equipment and modernizing buildings.
Energy expert R. Švedas says that although the current energy crisis is a difficult and difficult expert for Europe, one must see the positive side – faster steps towards the continent’s energy autonomy.
“V. Putin is going oh bank and it cuts off natural gas supplies to Europe. He wants to freeze Europe. That’s obvious. That explosion or damage to the Nord Stream is intentional, useful only for the Kremlin. We are seeing information and comments that limited gas is being tested from the south, which is the TurkStream pipeline. It is not clear what will happen then with the only supply of natural gas through Ukraine”, says R. Švedas.
According to him, this will be a difficult period for the people of Europe, for its industry, but the Kremlin is not only creating an energy and economic crisis and high electricity prices, but has also encouraged the abandonment of resources under its control.
“It will be difficult for us for a year, two, maybe even three years, the biggest price volatility will be this winter. The challenge will be to survive this winter. every transformation is great, but again (…) I also see a lot of positivity. The Kremlin is forcing us to do things much faster, which is a positive thing,” said R. Švedas.
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