Europe’s electric overhaul

What’s that scary-looking chart of European energy prices? Well, it shows you exactly why officials are looking to implement sweeping changes to lower the region’s electricity prices. 

What happened: The European Commission confirmed that it’s working on an ‘emergency intervention’ to the continent’s electricity market as prices surge, per the Financial Times 

  • Europe’s benchmark electricity price hit record highs yesterday, and in Britain, the most you can pay for energy bills (known as a price cap) has nearly doubled.

Why it matters: Gas prices worldwide are soaring to new heights as the war in Ukraine continues, and European governments fear the worst is yet to come. After all, colder weather is right around the corner, and Russia could choose to turn off the taps at any time.

In looking to overhaul the existing energy market model, leaders from several countries are backing the idea of separating electricity prices from the price of gas on the global market. 

  • Right now, electricity has one price across Europe, linked to the price of natural gas on the global market (since natural gas is widely used to generate electricity).
  • The problem, according to leaders, is that even if the electricity is coming from cheaper renewable sources, people are still paying a high price linked to natural gas.  
  • It’s not yet clear what the new model would look like, but the proposed idea is that electricity generated from cheaper sources should be priced differently. 

Big picture: As the risk grows that high energy prices will drag Europe into recession, investors are betting that the euro (which underpins 19 economies) will fall even further in value. The euro is currently sitting at 20-year lows, right at parity with the US dollar.