EU Proposes Cap to Recapture Excess Profits: Energy Update

(Bloomberg) -- The European Union aims to recapture excess profits from power producers that aren’t affected by surging gas prices. Fossil-fuel companies will also by hit by the measure, which aims to “re-channel” funds to struggling consumers.

It would be part of a package of measures that also includes reducing power demand across the bloc by 10%, and providing liquidity support for firms hit by growing collateral demands.

Pressure is mounting on policymakers ahead of an energy minister meeting in Brussels on Friday. Emergency interventions will be drawn up to try to stem the impact of surging prices for power and natural gas on industry, businesses and households. 

There is even more urgency to take action after Russia last week halted gas supplies on the Nord Stream pipeline indefinitely. Proposed EU measures expected include removing gas from other power generation in the way electricity is priced. Windfall taxes on excess profits may also be introduced to pay for help for households with ballooning costs, rising inflation and a region-wide recession. 

Key Developments:

• European Utilities Surge on EU Power Price Cap Proposal
• Scholz Accuses Russia of ‘Blackmail’ Over Gas Pipeline Shutdown
• German Aluminum Smelter Halves Output on Soaring Energy Costs
• Europe Gas Extends Losses as Politicians Rush to Contain Crisis
• Putin Says Nord Stream Can Reopen if Turbines Available
• Europe’s Top Aluminum Plant Will Cut Output 22% on Energy Costs
• Australia Moves to Allay Japan’s Fear It Will Cut Gas Supply

EU Targets Excess Profit of Non-Gas Power Producers (11:30 a.m.)

The European Union aims to recapture excess profit from power producers that don’t rely on expensive gas to help consumers as soaring energy prices bite.

EU proposals for a price cap of 200 euros per megawatt hour applies to revenues obtained by production of electricity from wind, solar and geothermal energy, hydropower, biomass, landfill gas, sewage treatment plan gas, biogas, nuclear, lignite and crude oilshale oil, according to a draft regulation seen by Bloomberg News. 

EU Price Cap Would Shift Costs of Supply Risks (11:20 a.m.)

The European Union’s proposed price cap on electricity not generated by gas of EU200/MWh would reallocate the costs of supply risks in power and gas markets from consumers to generators, according to Jefferies. 

However, it could theoretically lead to higher demand, which would exacerbate scarcity and supply issues. In that context, the EU needs to put greater emphasis on policies that reduce electricity consumption, Jefferies said.

Swedish Utilities Want Fixed-Rate Contracts Scrapped (11:10 a.m.)

Some power companies in Sweden want to cancel multi-year fixed-rate contracts with consumers as a result of the “force majeure” clause, state broadcaster Swedish Radio reported, citing people familiar with the matter.

The companies, which were not identified in the article, fear an extended period of high power prices as a result of Russia’s invasion of Ukraine.

Europe’s Newest Reactor Ramps Up (10:55 a.m.)

Power output at Europe’s newest reactor is set to hit a landmark 1,000 megawatts overnight as it ramps up toward full production, bringing some relief to the region’s strained market.

Finland’s Olkiluoto-3 nuclear unit will provide much-needed supplies to the Nordic nation’s taut power system when it reaches full capacity later this autumn, after imports from Russia were cut completely in May. 

EU Seeks Power-Demand Cut of 10% (10:25 a.m.)

The European Commission is seeking a deal to reduce power demand across the bloc by 10%, according to people familiar with the situation.

There’s also a proposal to cut demand during peak hours by 5%, while the commission is proposing a price cap on electricity not generated by gas of EU200/MWh, people familiar with situation said.

Soaring Energy Threatens German Companies (10:15 a.m.)

More than 90% of German companies view the rising energy prices as a serious or even existential threat to their businesses, according to a survey of the influential business lobby group BDI. 

About 40% of companies are planning to postpone investments into ecological or digital transformation because of rising energy prices.

Pakistan Sees Gas Becoming Unaffordable (10:05 a.m.)

Gas will become unaffordable for developing countries, Iqbal Z Ahmed, chairman of Pakistan GasPort Consortium Limister, said on a panel at Gastech in Milan.

“There should be some focus on making volumes available to emerging markets,” and the industry, gas producers and developed nations should find a solution, he said.

LNG Import Capacity Offers Europe Leverage (9:55 a.m.)

If Europe doubled its import capacity for liquefied natural gas, it would give the region more negotiating leverage with Russia, said Michael Sabel, chief executive officer of Venture Global LNG.

The company is supporting LNG regasification projects in Europe, which typically cost $500 million to $2 billion, he said.

Gas Storage May Run Empty, Industry Warns (9:45 a.m.)

Europe’s gas storage could run empty this winter if demand cuts are not rolled out urgently, industry group Eurelectric warned.

“Energy prices are soaring, amid throttled gas flows and increased scarcity in the market, pointing towards supply shortages this coming heating season,” the lobby group said in a report. Record wholesale electricity prices are exerting pressure on the retail market with prices up 84% since January 2021, it said.

Putin Says Give Us Turbines for Gas (9:25 a.m.)

“Give us turbines and we’ll turn on Nord Stream tomorrow, but they won’t give us anything,” President Vladimir Putin said at the Eastern Economic Forum in Vladivostok.

Accusations that Russia is using gas as an energy weapon are “nonsense,” said Putin, adding that a potential price cap on Russian oil and gas is “another stupidity.”

Greece Moves to Cut Energy Use (9:15 a.m.)

Greece announced measures and penalties Wednesday that aim to cut the use of energy in the public sector by 10% in the near future and by 30% by 2030. 

Measures include changes to street lighting and ensuring that lighting and air conditioning units are turned off when offices are not in use. Measures and incentives to encourage a reduction in energy consumption in the private sector and households will be announced in the coming days, the government said.

Scholz Accuses Russia of Blackmail (9:05 a.m.)

Chancellor Olaf Scholz accused Russia of seeking to blackmail Germany and its European partners by shutting off gas deliveries and dismissed an apparent leak in a key pipeline as “pretense.”

“Russia could deliver if it wanted to,” Scholz said Wednesday, according to the text of a speech to the lower house of parliament in Berlin. He said Gazprom PJSC simply needs to request a turbine for the Nord Stream 1 link that is in western Germany and ready for use after repairs.

Deutsche Bank CEO Sees Recession in Germany (9:00 a.m.)

Europe’s largest economy is set for contraction on the back of soaring inflation, energy supply bottlenecks and the disruption to global supply chains, Deutsche Bank AG Chief Executive Officer Christian Sewing warned.

“We will no longer be able to avert a recession in Germany,” Sewing said during a speech in Frankfurt on Wednesday. “We believe that our economy is resilient enough to cope well with this recession -- provided the central banks act quickly and decisively now.” 

German Aluminum Smelter Halves Output on Energy Costs (8:41 a.m.)

Aluminum producer Speira GmbH will cut output at its smelter in Germany by 50% in response to soaring energy costs.

The curtailment adds to the extreme toll that the energy crisis is having on Europe’s metals industry, which is one of the biggest industrial consumers of power and gas. The region’s aluminum and zinc production capacity has fallen by about 50% within the past year, and industry groups have warned of further closures over the winter months.

Gas, Power Futures Fall Again, Giving Up Gains (8:41 a.m.)

European gas futures erased earlier gains, with traders awaiting details from the region’s policymakers on measures to stem the effects of the energy crisis. Benchmark front-month gas contracts traded in Amsterdam dropped as much as 6.2%, while German next-year power declined 3%.

“The market is currently torn between conflicting feelings: fears on Russian supply, optimism on LNG supply and stock levels, all while waiting for the reforms on energy markets that EU is about to adopt,” according to EnergyScan, the market analysis platform of Engie SA.

Europe’s Energy Costs Surge by 1 Trillion Euros (8:11 a.m.)

Europe’s energy costs will exceed pre-pandemic levels by more than 1 trillion euros, according to estimates by S&P Global Ratings. The impending redesign of EU gas and power markets will be “complex and bear many risks” Emmanuel Dubois-Pelerin, lead analyst for EMEA utilities said. 

“Given massive collateral postings in volatile power markets, we believe European governments are increasingly willing to support liquidity on energy exchanges and at European utilities against massive hedge collateral posting movements,” he said.

Netherlands Reaches EU Gas Storage Target Early (7:44 a.m.)

The Dutch government confirmed on Wednesday that the country’s gas storage facilities are on average 80% full, nearly two months before the EU deadline. The cabinet had previously allocated an addition 10 million euros ($9.9 million) to fill the large Bergermeer gas storage facility as much as possible over the previous 68% target. Levels are expected to reach around 90%. Facilities at Grijpskerk and Alkmaar will be filled to full capacity and the Norg storage facility has now been filled to about 85%.

“We will continue to fill the gas storage facilities in the Netherlands in the coming period so that we have a buffer for the uncertain times that Europe is facing,” said Climate and Energy Minister Rob Jetten.

Gas Prices Move Higher After Recent Wild Ride (7:33 a.m.)

Gas futures in Europe edged higher early Wednesday after wild moves in the previous two days. Dutch front-month contract, the European benchmark, added 2.7%, with traders weighing risks to Russian supplies against moves drafted by politicians to fix the crisis ahead of winter. Gas supplies from Norway are also curbed due to seasonal maintenance, with volumes bottoming out at the lowest since mid-July on Wednesday. Works will wrap up next month.

Germany Seen Sliding Into Recession (7:33 a.m.)

For Germany’s industrial backbone, small and medium-sized enterprises, higher energy prices look like a “ticking time bomb”, according to according to ING Groep NV. With ongoing pressure on consumers’ disposable incomes, companies’ pricing power is fading, Carsten Brzeski, chief macro-economist said.

“Judging from the first macro data for the third quarter, the German economy has not fallen off a cliff at the start of the third quarter but is rather sliding into recession,” he said.

Australia Moves to Allay Japan’s Gas Cut Fears (7:33 a.m.)

Australia says it’s doing what it can to ensure supplies of liquefied natural gas to Asian customers will remain reliable, in response to concerns producers could be forced to redirect to relieve domestic shortfalls.

The nation, which vies with Qatar for the title of top LNG exporter, has the power to force producers in the east to redirect uncontracted cargoes tipped for international markets for domestic consumption, but has so far declined to use it. Even if Canberra decides to tighten the rules when the current agreement expires on Jan. 1, the impacted volumes are likely to be relatively minor -- about 4% of Australia’s exports, according to BloombergNEF.

Crisis May Extend Beyond Next Winter (7 am)

Europe could face an even bigger problem next winter with no end in sight for the energy crisis, Niek Den Hollander, Uniper’s Chief Commercial Officer, said in an interview in Milan.

If Russian gas flows remain curtailed, it’s possible that nations won’t be able to fill up storage sites effectively next summer, he said. 

“We could see low inventories in the end of this winter, and that would make it very difficult to procure gas and fill up storage again for security of supply next winter,” Den Hollander said. “It all depends on how much LNG Europe will be able to attract and will also depend very much on the weather.”

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