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Europe transfers energy to the "Soviet" management

15 September 2022

Kondratiev Sergey V. Principal Director on Economic Studies, Head of the Economic Department

Sergey Kondratiev, Deputy Head of the Economic Department of the Institute for Energy and Finance, commented to the Vzglyad business newspaper on the measures taken by the European authorities to reduce electricity consumption.

“Firstly, the EU will try to use the so-called demand response in relation to industry and the population. This is when the consumer is paid to reduce consumption conditionally from the declared 1000 megawatts to 500 megawatts per hour. As a rule, this fee is several times higher than the wholesale price in order to benefit the consumer. To do this, the EC or national governments will have to increase subsidies from the budget,” Sergey Kondratiev says.

Secondly, they will send instructions to consumers, primarily industrial ones, about the need to reduce electricity consumption, he adds. Because if Europe artificially manages to bring down electricity prices for enterprises from the current 500-600 euros to 200-300 per megawatt per hour, then many large energy-intensive enterprises in non-ferrous metallurgy, chemistry and petrochemistry, which have already closed, will begin to open again, the expert notes a reverse effect.

The third way to reduce consumption is to turn off consumers that are considered optional.

"A classic example is turning off the illumination of city buildings, city lighting, when a lamppost shines through one or two. They can reduce the frequency of operation of urban electric transport, in particular, metro and railway trains. This will reduce the comfort of people, because they will have to wait longer for transport and ride in full wagons," the expert comments.

The fourth way - they can impose restrictions on lighting and electric heating for the commercial sector in a broad sense (for shopping centers, shops, offices, banks, etc.).

The second proposal of the EC - to deprive power plants of excess profits by imposing a ceiling on profits of 180 euros per megawatt per hour - is designed to reduce prices in the wholesale market and then for end-users - industry, commercial and social facilities, for the population.

Kondratiev points to a double-edged sword. After all, if end-user prices fall due to this measure, then consumers will want to increase electricity consumption. That is, instead of saving, this measure will lead to the opposite effect, which contradicts the first measure to reduce electricity consumption by force.

Kondratiev Sergey V. Principal Director on Economic Studies, Head of the Economic Department
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