The European Commission has put forward a proposal to limit excessive gas prices following months of pressure from EU countries.
The news came on Tuesday via a press release on the European Commission website, which said that the proposal was to set a ceiling price of 275 euros per megawatt-hour (MWh), on the price of gas purchases for the duration of next year.
The move, which would come into force on January 1, 2023, and last for a year, is to help safeguard against escalating costs and in the event of another unexpected rise, gas prices would automatically be limited.
The proposal still needs to be voted on by the member states at a meeting that has been set for Thursday, November 24, but it mirrors an ongoing request by the Spanish government for more action to be taken.
The EC’s proposal would see a ceiling price set, one month in advance, for products of the Dutch TTF futures market. This is used by the European Union as a reference index for the price of gas throughout the EU.
If the Dutch price base reaches the maximum over two consecutive weeks, and doesn’t correspond with a similar one on the world market, the cap would be activated. But a difference of 58 euros or more would need to be seen.
According to Kadri Simson, the European Commissioner for Energy, the overall objective is to “achieve an immediate effect” on the market. However the brakes can be applied on the mechanism if it causes “serious disturbances”. The same will also happen if monthly reviews show that it is no longer a necessity.
Europe’s energy market has been somewhat volatile over the last few months and member states have been scampering to get enough gas reserves to get them through the winter months.
Even though the EU’s proposal would most certainly help to stabilise the market, Simson has cautioned that it will be more of a measure to safeguard against future exceptional and excessive price increases, rather than a “silver bullet”.
In the press release the European Commissioner for Energy stated that “Gas prices in the EU have fallen since August thanks to demand reduction, mandatory storage filling, diversification of supplies and other measures proposed by the Commission in recent months. But we have been missing in our toolkit a way to prevent and address episodes of excessively high prices. Today, we propose to put a ceiling on the TTF gas price to protect our people and businesses from extreme price hikes. The mechanism is carefully designed to be effective, while not jeopardising our security of supply, the functioning of EU energy markets and financial stability”.
November 18, 2022
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