companies to bid for compensation to reduce electricity

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Maltese businesses may have to “offer bid” to meet national winter electricity consumption reduction targets, under a proposed European Commission regulation.

Brussels wants to fight high energy prices by reducing demand as it fears a Russian gas shutdown that will expose European consumers to a harsher winter.

But its response to target the most expensive hours of electricity consumption – reducing it by at least 5% during certain peak hours – could also have a disproportionate impact on Maltese businesses according to government experts.

The EC wants to impose on Member States an obligation to reduce their electricity consumption by at least 5% during certain peak hours. Malta will be required to identify the 10% of hours with the highest expected price and then reduce demand during those peak hours.

The period will run from December 1, 2022 to March 31, 2023, which means that the 5% reduction in consumption would take place over an average of 2.5 hours per day.

However, businesses that reduce consumption during peak hours will also be compensated for lost business, through an open competitive process – tenders – where consumers bid for compensation for reducing their consumption. The lowest requested fee will win the auction.

According to government experts analyzing the Commission’s proposal, the requirements could be more onerous for the Maltese: the amount of electricity that must be reduced is 10% compared to the reference average of five winters, from 2017.

But Malta’s historical date, which includes the COVID period when there was already a reduction in consumption – notably due to the absence of mass tourism in 2020 – has lowered average demand.

This would mean that the Brussels measure imposes an additional reduction from an already low baseline, which for large companies such as hotels or manufacturing plants could also lead to job losses due to a lower productivity.

Malta’s energy system is fueled by liquefied natural gas, but is converted to electricity and does not have a distribution system for piped heating in winter. Winter peak times occur in the evening when the demand for heating increases, which means that reducing energy consumption inside government offices throughout the day will not have a big enough impact. .

Instead, it is likely that it will be up to certain industries and large companies to reduce their operations in order to compensate for the overall national reduction.

If winter peak consumption reaches 450 MW, the 10% reduction could be equivalent to the capacity required by about three medium-sized hotels or a large manufacturing plant, which would have to shut down operations for at least 2.5 hours a day.

LNG price cap

Malta is now pushing for a general cap on the wholesale price of natural gas, alongside Italy, Greece, Belgium and Poland.

If successful, this could lead to a reduction in the price of LNG, which in turn would impact the prices of Malta’s energy sources from its interconnection to Italy.

But the Commission is still studying the pros and cons of the petrol cap and will not present any legislative proposals until the internal assessment is completed.

The idea of ​​introducing an EU-wide price cap on all gas imports, beyond Russia, gained traction after August saw record prices in the commerce and pushed electricity bills to unsustainable levels.

Critics believe, however, that a cap on gas prices will alienate LNG shippers, who will instead re-route the product to other markets.

The EU is already trying to source LNG from other parts of the world to compensate for the loss of the Russian gas pipeline. But gas prices are hovering around €200 per megawatt hour, six times the 2021 price.

Gas is the most expensive fuel and it also sets the final price of electricity. A price cap on gas imports would artificially contain the price of electricity bills by forcing suppliers to actually make a smaller profit. But as demand from new gas markets grows, suppliers might not be too keen on such price caps.

Brussels map

The Commission’s plan is to reduce electricity consumption in households, businesses, factories and public buildings. The EU-wide plan would introduce a mandatory demand reduction target of at least 5% during peak hours. In practice, this would concern between three and four hours per weekday, the Commission estimates.

Peak hours refer to the time of day when demand intensifies and prices reach their highest levels, especially under the influence of gas-fired power stations.

Countries will be allowed to identify their own peak times, which usually occur between 7 a.m. and 10 p.m., and design their own measures to encourage reduction.

On top of that, a voluntary target would ask countries to reduce overall electricity demand – combining peak and off-peak hours – by at least 10% by the end of March.

The Commission believes that record bills are already pushing consumers to reduce their electricity consumption and that the EU plan would reinforce the current trend.

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