Seven countries warn EU against changing the energy market design

Seven EU member states, including the Netherlands, Sweden and Belgium, warned the executive of the bloc 'on Thursday' against interfering in the system that determines Europe's energy price. Officials at Brussels are scrambling to reduce bills.

This year, energy prices are a major political issue in Europe. Industries have warned that they can't compete with the lower-cost companies from China and the United States. The European Commission has been under increasing pressure to intervene due to the soaring prices of oil and gas worldwide as a result of the conflict in Iran.

Ursula von der Leyen, the President of the EU, has promised to review the current system for setting energy prices in the EU. The Commission is also preparing options to try to reduce energy costs. Analysts and officials agree that there is no "quick fix".

Seven EU governments, in a letter sent to Energy Commissioner Dan Jorgensen and seen by, warned that changing the mechanism which underpins Europe’s energy market would result in a less effective mechanism, and increase bills.

The letter stated that "intervening in the design of the electricity market and changing the price formation mechanisms" would also increase market and regulatory uncertainties, which are harmful to investments and European competition.

The letter, dated March 5, was signed by the energy Ministers of Denmark Finland Latvia Luxembourg and Portugal.

GAS PLANTS SET POWER PRICES

In the EU, the electricity system is designed to set the price of power based on the last power plant that needs to be built in order for the total demand to be met. Gas prices can cause electricity to skyrocket, even if the majority of power is produced by renewable sources.

Seven countries cited "the EU's dependence on expensive imported gas as the main cause of high electricity prices" and not "the design of the power market".

The signatories called on Brussels to expand renewable energy sources that are cheaper faster, to limit the role of gas as a price-setting element in the energy mix and to increase the?measures to encourage consumers to buy energy at low prices.

The letter'sets up a conflict with governments, including Italy. It announced plans to remove carbon charges from the bills of gas power plants - a move that would radically change the system for setting prices.

Signatory countries include Sweden and Finland who are among the wealthier EU member states. They also have the lowest electricity prices in the EU. Both countries produce over 90% of their energy from low-carbon resources - this is a huge difference to other countries such as Poland which gets the majority of its electricity by CO2-emitting coke. (Reporting and editing by Andrei Khalip.)

(source: Reuters)