Walking over the Energy Crisis in Europe

On October 6, 2022, the EU Council finally approved Council Regulation (EU) no. 2022/1854, “on an emergency intervention to address high energy prices”. This regulation represents the last piece of a large set of measures adopted at EU level to mitigate the effects of the long-lasting energy crisis which has started spreading up in Europe as of mid-2021, long before Russian invasion of Ukraine territory. The European effort to overcome electricity and gas prices pressure on businesses and consumers dates back to October 2021, when the EU Commission adopted the first toolbox of short-term measures to target the specific needs of consumers and industry addressing the upcoming increase in energy bills, named “Tackling rising energy prices: A toolbox for action and support”.  

Council Regulation (EU) no. 2022/1854 sets forth a particular set of measures to target soaring-up of electricity prices, in particular:

• a non-mandatory target providing for an overall 10% reduction in gross electricity consumption and a mandatory target providing for a 5% reduction in peak-hour electricity consumption;
• a cap on market revenues set at 180 EUR/MWh (save for lower market revenues caps established under EU members’ national regulations) for energy producers, including intermediaries which use so-called inframarginal technologies to produce electricity, such as renewables, nuclear and lignite; and
• a temporary mandatory solidarity contribution at a rate of at least 33 percent on profits generated in 2022, which are above a 20 percent increase on the average profits generated between 2019 and 2021, set on the profits of companies active in the crude oil, natural gas, coal and refining sectors.

The record-breaking volatility of the energy prices is attributable to several factors which followed one another during the past year and half: at first, the sudden increase in energy demand following business re-opening after the pandemic, together with the effects of the Green New Deal measures which brought energy producers to take coal off the grid. Then, the increase in the demand of raw materials, especially for natural gas from Eastern Asia, which is tightly bound to Europe's energy dependence from Russia, Norway and other energy exporting countries. Finally, the war in Ukraine and the wide adoption of financial and commercial sanctions by EU and related commercial partners against the Russian Federation, which is also causing interruption in the supply of oil and gas from Russia.

Our cross-border European Energy department has explored and analysed the measures adopted by the single EU member states to address the consequences of the energy crisis and give relief to businesses and consumers, especially at a financing and tax cut levels.

Such measures vary significantly depending on the degree of foreign raw materials dependence of each country, especially for gas importation. In fact, electricity production from fossil fuels (carbon and natural gas) is still very high in Europe and EU members powers of intervention in energy management is strictly liked to compliance with EU regulations and directives on gas and storage.

According to the EU Commission, at the moment, EU States achieved the targeted 85% gas storage facilities filling goal set forth in June 2022, but attention cannot be lowered due to expected increase in gas consumption in the colder months of the year. Moreover, EU institutions are focusing attention on accelerating the green-energy transition, pushing EU members for speeding up authorizations’ procedure for renewable energy plants and supporting green energy financing also in derogation to State aid rules.

Our cross-border Energy department practice is working in coordination with the Corporate, HR & Employment, Dispute Resolution & Arbitration, Finance and Financial Regulation, Tax, Regulatory and Antitrust & Competition sectors to  provide clients with a comprehensive overview of the effects of energy and raw material crises, not only on the amount of the next energy bills, but also on the endurance of commercial relationships already in place between, for example, energy producers and customers, as well as between business energy consumers and suppliers, both at national and cross-border level, to address in good time potential consequences of the energy crisis on enterprises and the production supply chains.

For more information, please reach out to Pierpaolo Mastromarini.