Wednesday

7th Dec 2022

'No substance' price ceiling for gas leaves everyone disgruntled

  • EU commissioner for energy Kadri Simson said the plan could be "a powerful tool" (Photo: European Parliement)
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A European Commission proposal to limit the price of gas, which it presented ahead of a crucial meeting of energy ministers on Thursday (24 November), was immediately slammed by experts and politicians alike.

A group of 15 countries, including Spain and Greece, had pushed for a price ceiling to prevent gas prices from reaching the extreme heights seen in August.

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But the commission plan capped the price at €275 per megawatt-hour and would only activate if prices exceeded that level for two weeks straight. This cap is so high many quickly deemed the proposal useless.

"We asked the commission for a proposal, and it comes up with this: a joke," Teresa Ribera, the Spanish minister for energy transition, said on Wednesday, according to Europa Press, a Spanish news agency.

"A joke? Yes, I can agree with that description," Dutch energy expert Jilles van den Breukel at the Hague Centre for Strategic Studies (HCSS) told EUobserver. "This cap doesn't have a lot of substance. I think it is very improbable that the limit will ever be tested."

Even in August, when wholesale gas prices exceeded €300 per MWh, the price ceiling would not have been triggered as prices remained above €275 per MWh only for a week. And with gas futures now trading at €113 per MWh, the proposed price cap seems far off.

The group of 15 member states led by Spain will likely try to reduce the cap to a lower level. "The commission is going to hear very tough things tomorrow from the vast majority of ministers," Ribera said.

This likely means another round of intense debate, as Germany, Netherlands, and Denmark have so far been unwilling to agree to any price limit — even a high one — fearing lower prices would boost demand, which, in turn, would further exacerbate the gas crunch.

Not a 'non-policy'

Experts tend to agree. Capping the gas price doesn't solve the fundamental problem, which is "a lack of Liquified Natural Gas," van den Breugel said.

And Lion Hirth, professor of energy policy at the Berlin-based Hertie School, told EUobserver: "you can't lower prices without increasing demand."

"I see people making fun of the proposal, collectively calling it a 'non-cap', but I am a little more cautious," Hirth said.

"What sounds like a very high price today may not be high tomorrow. In fact, what we now consider reasonably cheap was extremely high only a year ago," he said. "This is not a non-policy. It could come into effect, and then it could do real harm," he said.

Protect consumers directly

Instead, Hirth says governments should focus their attention and resources on measures directly protecting households and businesses.

As part of an expert advisory group to the German government, Hirth co-drafted a plan that limits the price households and small and medium-sized companies pay for gas.

It only covers 80 percent of their previous consumption. Market prices apply to the remaining 20 percent. This leaves incentives to consume less, while protecting people against excessive prices.

The German government has since adopted the plan, which is expected to come into action on 1 March 2023.

Such measures, however, are expensive and may not be affordable for less wealthy EU countries.

In October, Italy, France, Portugal, and others called on the EU to step in with a new pandemic-type borrowing fund to help countries finance their national support schemes. But such a fund has been blocked by Germany and Netherlands.

And thus, talks about a price cap on wholesale gas, which lowers prices for everyone, continue.

Norway rejects EU price cap proposal

Norway opposes the EU proposal to set a dynamic price ceiling for natural gas transactions, instead strongly advocating for commercial agreements to tackle the energy crisis, the country's minister of oil and energy Terje Aasland said.

EU is 'close to the solution' on gas price cap

The outcome of the two-day meeting of EU leaders did not deliver any clear agreement on whether and how to limit gas prices — but some believe EU ministers will agree on emergency measures in the coming weeks.

EU commission set to unveil 'dynamic' gas price cap proposal

The European Commission will present on Tuesday (18 October) a package of measures to tackle the energy crisis, including a temporary "dynamic" gas price cap mechanism aimed at curbing price volatility — here's what came before.

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