Eurasia Press & News
EU energy ministers reached a deal on Monday (19 December) to limit excessive gas prices, following months of debate over whether or not to implement a price cap on imports into Europe.
Under the agreement, gas prices on the EU’s main trading hub will be capped should they exceed €180 per megawatt-hour (MWh) for three consecutive working days and if they are higher than global gas prices by more than €35/MWh for the same three days.
“From the start, there was a common goal: keeping prices under control while at the same time preserving securing security of supply. Today, we achieved this goal,” said Belgian energy minister Tinne Van de Straeten whose country was one of the biggest proponents of the cap.
The measure – formally known as the market correction mechanism – would see prices of month-ahead, three-month ahead and year-ahead derivatives capped at a certain level depending on the global price of liquified natural gas (LNG).
Implemented initially for a year, it could also be extended to other trading hubs via a second legislative proposal from the European Commission, due by the end of March, according to a room document seen by EURACTIV.
“We welcome the agreement of EU ministers on a gas price cap of €180/MWh and which includes a cap on all European hubs,” the Polish government, which was also pushing for the cap, said on Twitter.
Countries like Germany were not convinced, however, saying a price limit risked jeopardising security of supply by limiting the ability of companies to buy liquified natural gas on world markets.
While Berlin eventually traded more ambition in renewables legislation for its support, Hungary voted against the measure and both the Netherlands and Austria abstained.
“I remain worried about major disruptions on the European energy market, about the financial implications and, most of all, I am worried about European security of supply,” said Dutch energy minister Rob Jetten.
Meanwhile, Germany’s Robert Habeck pointed to new safeguards to assure journalists that a gas shortage would be prevented.
“I can say that with the instruments that we have introduced as safety buffers, as observation time, we have been given enough instruments to prevent this,” he said.
A ‘dynamic bidding limit’
The measure will be in place for a year from 15 February 2023. The energy regulator agency (ACER) will monitor markets and, if the triggers are met, publish a notice on its website, preventing transactions above a “dynamic bidding limit”.
This limit will be formed of the reference price for LNG plus €35/MWh.
There will also be a price floor whereby, even if the reference price for LNG is below €145/MWh, the price cannot drop lower than this plus €35.
Once activated, the dynamic limit will be in place for at least 20 working days. It can be automatically deactivated either by the dynamic bidding limit dropping below €180/MWh for three consecutive working days or if a regional or union wide energy emergency is declared.
Lower thresholds, more safeguards
The triggers for the cap are significantly lower than the European Commission’s original proposal, which was called useless by many countries as it would not have prevented the price spike experienced in August this year.
A lower cap means the mechanism is more likely to come into effect and be in place for longer, said Jack Sharples, a research fellow at Oxford Institute for Energy Studies on Twitter.
For instance, this year month-ahead prices on the EU’s main gas trading hub were above €188/MWh – a previously floated level for the cap – for 43 days and consecutively for 40 days around August.
Asked about the drop from the Commission’s original proposal to the agreed level, EU energy chief Kadri Simson said: “We warned the member states about the risks and, if parameters would be lowered, then safeguards have to be strengthened and this is exactly what has happened.”
“There are now some additional safeguards in place,” she added.
The Czech minister in charge of the talks Jozef Síkela later explained the safeguards in a press conference.
“The mechanism will be automatically deactivated in several cases: once the LNG price plus the premium drops back below €180 or in case the Commission declares an emergency,” he told journalists.
“The mechanism can also be suspended in case of increased gas consumption, decrease of trades on the TTF or between the member states or a decrease of quarterly LNG imports,” he added.
However, with all of the safeguards, it is difficult to see the ultimate impact the measure could have, commented Simone Tagliapietra, a senior fellow at the Bruegel economic think-tank in Brussels.
Renewables and gas solidarity laws unlocked
The agreement also means the EU has unlocked two other pieces of emergency legislation that were merged into a package at a previous energy ministers meeting.
This includes measures to boost European solidarity around gas supplies, like mandatory joint purchasing and a fall back agreement between countries in case of a supply emergency.
The agreement also unlocks a law to speed up the rollout of renewables by temporarily granting them “overriding public interesting” and cutting down on permitting times.
“The IEA tell us we need 60 gigawatts of solar by next winter. Those projects are all tied up in bureaucratic processes – this regulation unlocks masses of solar potential, right when we need it most,” said Walburga Hemetsberger the CEO of industry group SolarPower Europe.
In order to get Germany on board with the gas price cap, the permitting law was also made more ambitious, with elements on permitting grids made faster and more simple.
