The European Union's chief is proposing new measures to try to stop the recent increase in energy prices.

The European Union's chief is proposing new measures to try to stop the recent increase in energy prices.

Pylons of high-tension electricity power lines are pictured near Villers-la-Montagne in France, September, 3, 2022. REUTERS/Gonzalo Fuentes/File Photo

European governments have ploughed hundreds of billions of euros into tax cuts, handouts and subsidies to try to contain an energy crisis, fuelled by Russia's invasion of Ukraine, that is driving up inflation, forcing industries to shut production and hiking citizens' bills ahead of winter.

The proposed measures include capping revenues from low-cost electricity generators and forcing fossil fuel firms to share the profits they make from soaring energy prices. Wind and solar farms and nuclear plants would face a cap of 180 euros per megawatt hour on the revenue they receive for generating electricity, with governments recouping any excess cash and recycling it to support consumers. That would cap generators' revenues at less than half of current market prices. Germany's front-year electricity price hit a record high of more than 1,000 euros/MWh last month and was trading at above 400 euros/MWh on Tuesday. Fossil fuel firms would also face a windfall profit levy to claw back what the Commission described in the draft as "unexpected profits" linked to soaring oil and gas prices stoked by Russia slashing gas deliveries in the wake of its invasion of Ukraine. Oil, gas, coal and refining firms would be required to make a "solidarity contribution" of 33% of their taxable surplus profits from fiscal year 2022. The Commission has backed away from an initial plan to cap Russian gas prices but some EU countries are divided over whether broader price caps would help or harm Europe's efforts to secure winter energy supplies.

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The proposed measures include capping revenues from low-cost electricity generators and forcing fossil fuel firms to share the profits they make from soaring energy prices.

Wind and solar farms and nuclear plants would face a cap of 180 euros per megawatt hour on the revenue they receive for generating electricity, with governments recouping any excess cash and recycling it to support consumers, according to the draft, which could still change before publication.

Fossil fuel firms would also face a windfall profit levy to claw back what the Commission described in the draft as "unexpected profits" linked to soaring oil and gas prices stoked by Russia slashing gas deliveries in the wake of its invasion of Ukraine.

Oil, gas, coal and refining firms would be required to make a "solidarity contribution" of 33% of their taxable surplus profits from fiscal year 2022.

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Some EU countries are divided over whether broader price caps would help or harm Europe's efforts to secure winter energy supplies.

The Commission has backed away from an initial plan to cap Russian gas prices, however, and EU countries are divided over whether broader price caps would help or harm Europe's efforts to secure winter energy supplies.

Some member states are concerned that capping prices could discourage investments in new production, leading to supply shortages in the future. Others argue that price caps are necessary to protect consumers from unfair price hikes.

EU countries will have to negotiate the Commission's proposals and agree on final laws. With contentious gas price caps off the table - at least, for now - diplomats from some states were optimistic that deals could be struck at a meeting of EU energy ministers on Sept. 30.

The Commission's proposal is just one part of a package of measures aimed at mitigating the impact of high energy prices on consumers and businesses. Other measures include financial support for low-income households and energy-intensive industries.

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