Why is Europe considering energy market reforms?

Aiming at ensuring electricity prices reflect cheaper renewable energy, the European Union is preparing an emergency plan to separate power prices from the soaring cost of gas.

In order to discuss how to ease the burden of soaring energy prices on businesses and households, energy ministers from the bloc will meet on September 9.

Driven by record gas prices as Russia curbed supply to Europe, European power costs have surged in the last year.

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Following Russia's invasion of Ukraine, the West imposed crippling sanctions on Moscow and in retaliation Kremlin cut the gas supply of several members of the bloc.

Following cuts imposed by Russia, gas prices have soared as they are determined by global competition for the fuel.

Racing to find a short-term solution, the 27 members of the European Union are considering energy market reforms.

With the cheapest sources coming in first, gas plants in Europe set the wholesale electricity price by the last power plant needed to meet overall demand.

To incentivise more investment in renewable generation, the cheaper renewables generators end up with a bigger profit margin.

Resulting in cheap renewable energy being sold to consumers for the same price as costlier fossil fuel-based power, Spain said the system is unfair.

Highlighting the EU needed to decouple the price of gas and power, Commission chief Ursula von der Leyen said that severe drought in the continent has hampered hydropower output and affected coal deliveries.

Rallying support for a cap on the price of gas used to generate electricity, the Czech Republic said it has received support from France to separate the price of electricity from the price of gas.

According to Italy, EU countries should agree on a cap on the price of gas imported from Russia or pay gas companies the difference between the capped price and the higher market price.

Saying it would effectively subsidise fossil fuel generation with public funds that they said would be better spent on the shift to cheaper clean energy, Germany and the Netherlands pointed out other options that could include restricting financial speculators' participation in gas markets.

Rather than a hasty market overhaul, the bloc can target financial support for low-income households and businesses hit hardest by the soaring prices, according to analysts.

(With inputs from agencies)

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