The European Union might soon equip itself with a price cap system to control soaring gas bills, but only as a last resort measure to contain speculation and market volatility.
As part of its next package of emergency measures to tackle the energy crisis, the European Commission plans to unveil a price limit on Tuesday “temporary” et “dynamicwhich would apply to transactions taking place through the Dutch Securities Transfer Facility (TTF), the main gas platform in Europe.
“The time has come to put in place such a mechanism“, declares the Commission in a document seen by Euronews.
The TTF is a virtual market where shippers and buyers exchange gas supplies, both for immediate delivery and for future provisions. Since Russia launched the invasion of Ukraine, the platform has seen sharp ups and downs in gas prices and it is this supply uncertainty that is fueling speculation.
The TTF reached a record price of €339 per megawatt hour in August, resulting in higher electricity bills. After this peak, costs began a downward trend, reaching a three-month low in October. Monday morning, trade was around 133 euros per megawatt hour.
The price cap proposed by the European Commission would not not permanently activebut would only be triggered”if needed“, i.e. when the negotiated price exceeds the price set by the mechanism.
The Commission’s draft document does not specify the price range, but this is the key question regarding this measure.
At the same time, the Commission should develop a alternative benchmark to the TTF which would be exclusively dedicated to the trade in liquefied natural gas (LNG) which enabled the 27 to compensate for the cuts in deliveries from Russia by gas pipeline.
The leaked document reveals, among other things, that the institution chaired by Ursula von der Leyen is not yet ready to move forward with a broader price cap that would apply to gas used for the production of electricity.
Gas determines the final price of electricity. A growing number of Member States therefore want decouple this link and put an end to what they call the contagion effect.
“The introduction of a price cap on gas used for power generation has lowered prices in Spain and Portugal, but carries some risks if introduced across the EU“, says the Commission, referring to the state aid scheme used in the Iberian Peninsula.
“EU Member States are very diverse when it comes to their energy mix, connections and power systems. We need to design a solution that works for each of them and that is in line with our broader objectives: not to increase gas consumption and to manage flows beyond EU borders.“
The Commission’s muted response should be welcomed by Germany and the Netherlands, which opposed too much intervention in the market. On the other hand, it should arouse the dissatisfaction of Italy, Belgium, Poland and Greece, which are the main defenders of a broad price cap.
EU Energy Commissioner Kadri Simson explained last week that a price cap requires “maximum consensual support and noted that not all member states agreed.
These divisions should once more come to light at the European summit on Thursday and Friday in Brussels.
The Commission is also proposing other measures likely to reduce the energy bill and guarantee sufficient supply.
She wants to set up a common purchasing system which would allow Member States to buy gas as single customer and to use this collective purchasing power to lower prices.
“Group purchasing will facilitate more equal access to new suppliers and international markets and will give more bargaining power to European importers”says the Commission document. “Russian sources of supply will be excluded from participation in the platform.”
According to the Commission, joint purchasing will be particularly useful next year, when Member States begin the costly and arduous process of filling their stocks for winter 2023-2024.
The institution also urges member states to speed up the signing of so-called “of solidarity“, to ensure that gas crosses borders when supplies are low and reaches countries in need.
“Only six bilateral solidarity agreements between Member States have been signed, out of a possible 40“, can we read in the draft document. “It’s too slow“.
Consequently, the European Commission wants to establish “default rules” in terms of solidarity to deal with emergency situations.
The final version of the document will be presented on Tuesday followingnoon following the meeting of the College of Commissioners.
