22nd May 2022

EU energy regulator warns against capping gas prices

  • The EU should simplify and speed up the regulatory process for renewable projects, the energy regulator noted (Photo: Windwärts Energie)
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The European electricity market has worked to mitigate energy prices to the tune of €34bn, according to a key report published on Friday (29 April) by the EU energy regulator, which advised against interfering with prices on the wholesale gas market.

"The market rules in place have to some extent helped mitigate the current crisis," the Agency for the Cooperation of Energy (ACER), the EU agency responsible for overseeing the single market, found.

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  • In the second half of 2021, average household electricity prices in the EU increased 'sharply' compared with the same period of 2020 (Photo: Eurostat)

But it also noted that "the electricity market design is not designed for the emergency that the EU currently finds itself in," referring to the rapid economic recovery of 2021 followed by the Russian invasion of Ukraine in February 2022, which drove up gas prices to record highs.

EU governments have struggled to figure out how to address surging electricity bills.

Average household electricity prices in the EU increased "sharply" the EU's statistical office, Eurostat, reported on Friday, with prices rising from €21.3 per 100 kilowatt-hours in 2020 to €23.7 per 100 kilowatt-hours in the second half of 2021.

ACER expect prices to remain volatile for the foreseeable future.

The agency wrote that EU governments could help vulnerable households that cannot pay their electricity bills directly.

It also proposes measures to remove regulatory obstacles, making it easier for clean energy companies to receive permits for wind and solar projects.

Governments can speed up projects by providing financial guarantees, allowing smaller independent energy companies and traders to compete with established firms.

France and Spain have been vocal proponents of capping prices on the wholesale gas market, which led to political disagreement with other member states, including Germany and the Netherlands, who oppose such a move.

The European Commission had tasked ACER in October 2021 with assessing the benefits and the drawbacks of the EU's current wholesale electricity.

ACER has now also made clear it advises member states they should refrain from putting a cap on prices, as it would undermine the workings of the single market, making the cross country trading system less flexible.

"Ill-designed emergency measures or distorting price signals by interfering in market price formation may roll back EU market integration and overall competition," ACER wrote.

It also added that European energy independence would become more resilient if member states delivered on their promise to increase transmission capacity and energy trading across borders.

The European Commission is expected to unveil its plan to wean the bloc off Russian gas in a couple of weeks, for which the ACER report will form the basis.

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