EU proposes long-awaited gas price cap –


The European Fee tabled its long-awaited proposal for a measure to restrict extreme gasoline costs on Tuesday (22 November) following months of stress from EU international locations.

The so-called ‘market correction mechanism’ will apply to the EU’s major gasoline buying and selling hub, the Dutch TTF, and goals to restrict extreme costs when they’re unrelated to international worth spikes.

“We stay uncovered to those damaging worth hikes, which hurt European business and place the burden onto our households,” mentioned European Power Commissioner Kadri Simson.

“Till now, we have now been lacking a device in our toolbox to deal with these conditions just like the one which we witnessed this August and that is what we’re proposing right this moment,” she added, referring to when month-ahead costs on the Dutch TTF spiked above €300 per megawatt hour.

If accepted by EU international locations, the cap will likely be in place for a 12 months and are available into power if two triggers are met: If month-ahead costs on the Dutch TTF exceed €275 for 2 weeks and if the distinction between the TTF worth and the worldwide liquified pure gasoline (LNG) worth is €58 or extra.

The European regulator ACER will monitor the markets. If the standards are met, a discover will likely be publised and the mechanism will likely be activated, stopping buying and selling of month-ahead merchandise above the set worth.

If costs then drop or international market costs additionally grow to be excessive, the value ceiling will likely be deactivated.

However the European Fee is obvious that the mechanism will not be a silver bullet.

“This isn’t a regulatory intervention to set the value on the gasoline market at an artificially low degree. It’s a mechanism of final resort to stop and, if essential, handle episodes of excessively excessive costs, which aren’t consistent with international worth developments,” mentioned Simson.

Cap will likely be restricted to month-ahead buying and selling

In line with the Fee’s proposal, the cap will apply to month-ahead costs on the EU’s major gasoline buying and selling hub, the Dutch TTF, which accounts for about 80% of commerce. This can then have a ripple impact on different hubs as it’s used as a reference level, in accordance with a senior EU official.

Nevertheless, the cap will solely cowl month-ahead merchandise, which account for “some 22%” of commerce on the Dutch TTF, the official added.

Spot and day-ahead merchandise won’t be lined as this may threat liquidity on the short-term markets and will hit safety of provide.

Over-the-counter buying and selling can also be out because it can’t be simply monitored. Alongside this, the Fee needs it as a so-called ‘security valve’ to make sure Europe’s safety of provide, in accordance with a non-paper despatched to EU international locations final week.

However there are “vital downsides” to counting on over-the-counter commerce as it isn’t clear and small gamers have restricted entry, warned Bram Claeys, a market skilled on the Regulatory Help Undertaking.

The European Fee itself voiced related issues in its non-paper.

Nevertheless, the EU government now factors to the big quantity of safeguards constructed into the mechanism. These embody requiring the value to be excessive for 2 weeks earlier than the cap kicks in, stopping destabilisation of the market by always activating and deactivating it.

Alongside this, if activation is imminent, the European Fee will search recommendation from our bodies just like the European Central Financial institution, the European Securities and Markets Authority, and the community of transmission system operators for gasoline (ENTSO-G), which monitor safety of provide and market stability.

The cap may even be always monitored whereas activated in case it will increase gasoline demand, threatens safety of provide, jeopardises current long-term contracts, or has unexpected penalties on the EU’s inside market or intra-EU flows.

Had been one thing to go mistaken, a call to droop the mechanism may very well be taken in a short time, the “similar day primarily”, in accordance with a senior EU official.

Proposal within the nick of time

The proposal has been anticipated for a number of weeks, following the concept being tabled and EU leaders agreeing on it in precept in mid-October.

Nevertheless, there was frustration in some EU capitals in regards to the European Fee’s slowness in tabling the proposal required to make it a actuality.

This led to some international locations threatening to dam different measures proposed by the Fee, like obligatory joint buying of gasoline and a fallback solidarity settlement in case of emergency, anticipated to be adopted at a gathering of vitality ministers on Thursday (24 November).

EU nation representatives will talk about the proposal at their assembly on Wednesday forward of the vitality ministers’ assembly.

However it’s but to be seen whether or not the international locations most supportive of a worth cap – Poland, Belgium, Italy and Greece – and people most in opposition to a worth cap, particularly Germany and the Netherlands, will settle for the proposal.

[Edited by Zoran Radosavljevic]

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