MEP Kelly calls for update to EU energy crisis tools as price shocks become “new normal”

MEP for Ireland South and leader of Fine Gael in the European Parliament, Seán Kelly, has called on EU leaders to urgently revisit the 2022 Emergency Regulation (EU) 2022/1854 on electricity prices and strengthen EU crisis-response tools ahead of this week’s European Council, warning that repeated global shocks are leaving European consumers exposed to volatile fossil fuel prices.

“With disruption to global energy flows in the Middle East once again pushing the global gas price upwards, households and businesses are facing yet another spike in electricity costs. We are still unfortunately dependent on imported fossil fuels, and it is our citizens who pay the price,” Kelly said.

“In 2022, following Russia’s invasion of Ukraine and the resulting energy price crisis, the EU responded with an Emergency Regulation on the assumption that this was an exceptional, one-off crisis. However, the years since have shown clearly that extreme volatility is the new normal, and Europe must respond accordingly.”

Kelly stressed that Europe already has a functioning model that works for both investment and consumer protection, pointing to the increasing use of two-way support schemes for renewable energy.

“In Ireland and across Europe, many newer renewable projects operate under two-way contract-for-difference type models. When prices are low, these projects receive financial support, but when prices spike, they pay excess profits back to the consumer. This money is then used to reduce consumer bills. It is a fair system, and it is already delivering, but it doesn’t cover the whole market.

He said this principle should now underpin Europe’s broader response to energy price shocks.

“More renewable investment is the only way we can put downward pressure on wholesale prices and lower bills. We simply must end our dependence on imported fossil fuels as quickly as possible. But until we do so, in times of global fossil fuel-driven price shocks, it is only reasonable that revenues above a certain level are returned to consumers.”

In European electricity markets, the price all market participants receive is determined by the marginal price – i.e., the price bid by the last generator required to meet electricity demand, very often a gas-fired unit. In 2022, an ‘inframarginal revenue cap’ was introduced to limit the market revenues earned on the market by non-gas-fired generators to avoid them making exceptional profits because of the global spike in gas prices.

MEP Kelly noted, however, that any reintroduction of such measures should be designed to ensure it reflects a fair return for generators without enabling excessive profits.

“Investors must have certainty and a reasonable return. We need more renewables to shield ourselves from volatility like this, and consistent investment signals are key to ensuring these projects are built. But when prices are driven far beyond reasonable expectations by geopolitical events, the resulting additional profits should not be earned while consumers struggle to pay their bills.”

MEP Kelly also called on Member States to act at European Council level to make Europe more responsive to crises, building on the 2022 framework to allow for the rapid introduction of inframarginal revenue caps and solidarity measures during periods of extreme volatility.

He warned that the current legal framework for declaring an electricity price crisis is too slow and rigid to respond to today’s reality.

Under Article 66a of the Electricity Directive, the Council can act when prices exceed 2.5 times the average of the previous five years and are expected to remain above €180/MWh for a sustained period. Kelly argues that this is an overly high bar that should be revisited and made more dynamic.

“This approach is already starting to look outdated. When recent years have already been marked by structurally high prices driven by fossil fuel supply shocks, using a five-year average that includes those spikes makes it harder to trigger action when it is needed most.

“We effectively have a response system with a built-in delay at a time when we need Europe to respond quickly.”

Kelly concluded with a clear message to Member State leaders ahead of Thursday’s Council meeting:

“If we don’t adapt our crisis frameworks to the new volatile reality, we risk leaving European consumers exposed to every global energy shock and failing to respond fast enough”.