EU energy Ministers
agreed on 9 September 2022 on short-term measures to
decrease high energy prices, reiterated in the State of the Union Address. They invited the
Commission to swiftly develop proposals in the areas of: (1)
capping revenues of inframarginal electricity producers, (2)
imposing price caps on gas, (3) incentivising electricity demand
reduction, and (4) supporting liquidity by ensuring that market
participants have sufficient collateral to meet margin calls.
Capping Revenues of Producers
Electricity markets based on economic dispatch are structured
around an economic merit order – generation is scheduled to
be brought on the grid starting with producers bidding the lowest
prices, followed by incrementally more expensive bids, until demand
is met. The cost of the last unit of electricity needed to meet
demand – the marginal cost unit – sets the market
clearing price. In the EU, gas-fired generation may set the
marginal price for several reasons, in
