30th Jan 2023

Radical energy market reforms need 'more support' from EU members

  • Dutch benchmark gas prices fell below €100 per megawatt-hour on Tuesday, the lowest it has been in months (Photo: Bilfinger SE)
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EU energy ministers met in Luxembourg on Tuesday (25 October) to hammer out the bloc's energy plan, a topic of intense debate since the historic peak in gas prices, but shied away from radical market reform as proposed by the EU Commission.

In a non-paper presented shortly before the ministers were scheduled to meet, the commission circulated an idea to radically change the makeup of the EU energy market by decoupling gas and electricity prices, which would dramatically lower the cost of renewable and nuclear energy compared with that of gas.

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"It would provide a more permanent solution for the excessive dependence of European electricity bills on highly volatile natural gas markets and bring the benefits of lower cost renewables to consumers," the commission document said.

But at a press conference after Tuesday's negotiations, Czech industry minister Jozef Sikela who chaired the meeting, signalled the plan needed to garner more support from member states to be taken further.

"Everything is possible. It depends on the willingness of the countries," he said. "Maybe we'll meet again during Christmas."

Common gas purchases

A proposal that did get final approval from the bloc's 27 energy ministers was a common gas purchasing platform which may be in place as soon as November.

This platform obligates EU countries to pool demand for at least 15 percent of total storage capacity--about 13.5bn cubic metres of gas.

The pooling will partly avoid a bidding war between European energy companies — a measure Dutch minister Rob Jetten described as "extremely important" to deal with the ongoing energy crisis in 2023, when countries have to refill their storage again.

With EU gas storages 90 percent full, Dutch benchmark prices fell below €100 per megawatt-hour on Tuesday, suggesting a return to lower price levels for the time being.

"I hope that Vladimir Putin is also watching this and will start to understand that the energy weapon he wanted to use against us is turning against him," Sikela said.

To prevent extreme price hikes from recurring in the future, the energy ministers also discussed a proposal allowing the EU to intervene in markets and set a maximum dynamic price for transactions made on the Dutch Title Transfer Facility (TTF).

The mechanism would only be used as a last resort. EU energy ministers agreed to let the commission work out the details, but some were reluctant to embrace the plan.

"We've been asking for a proper impact analysis. There are still questions about the economic consequences," Jette said. "And our position is that any measure we propose should not disrupt gas supply."

By artificially lowering market prices overseas, liquified natural gas (LNG) transporters could reroute their cargo to the highest bidder outside of the EU, which could result in Europe losing out on valuable supply.

New benchmark

Another measure is to separate benchmark prices for LNG from gas traded over land. The TTF is currently used for both pipeline gas and liquified natural gas (LNG).

But commission president Ursula von der Leyen said earlier in October that the TTF is "no longer representative of the cost of imported gas [from overseas]."

In a bid to reduce speculation, the EU's energy regulator has now been tasked to design a complementary benchmark for LNG to be completed by 31 March, in time for the next filing season.

Iberian model

A plan to cap the price of gas used to generate electricity, a measure already implemented on the Iberian peninsula and supported by France to implement EU-wide, needed more support to be taken forward.

"To assess this more properly, we need more details. We need a concrete legal proposal or an impact assessment," Sikela said. "The council of ministers already asked for this information on 9 September, but it has yet to be provided."

"Clearly, the commission and maybe some other member states do not see the Iberian model as a way forward," he said.

The next emergency energy council meeting is scheduled for 24 November.

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