A gas price cap must be extended to energy-importing countries such as the UK and Switzerland to be effective. The European Commission announced this before a key ministerial meeting.
This is reported by Bloomberg.
As the newspaper notes, a number of European Union countries are pushing for a price cap on natural gas used to generate electricity, but the European Commission warns that any such move must be coordinated to avoid increasing demand or subsidizing electricity to foreign consumers.
Alternatively, the EU would have to export electricity at a higher price than it trades domestically, which is prohibited by a number of international agreements with partners. The European Commission issued its opinion in the form of a document summarizing the disadvantages and benefits of such a price cap.
Capping gas prices is high on the political agenda in Europe as governments seek to curb an unprecedented energy crisis caused by gas cuts from Russia, the continent's former biggest supplier. EU leaders last week agreed to a package of measures to reduce skyrocketing gas and electricity bills that are fueling inflation, threatening to push the 27-nation bloc into recession.
While most countries are calling for a broad cap on wholesale gas prices, a small group of countries wants to cap the price of gas used for electricity production, along the lines of the model already implemented in Spain and Portugal. Any EU restriction still needs to be proposed by the commission and then approved by member states to take effect.
This process will take at least several weeks. The first step is for the bloc's energy ministers to agree on the regulation proposed by the commission on Oct. 18 and pave the way for market intervention, which could happen at an emergency meeting expected in late November.
At that point, the commission will have a mandate to put forward a separate proposal on cap prices, which will again be sent to member states, who will have the right to amend it. While details on exact dates and options are scarce, many diplomats say that implementing both types of price caps at the same time is not possible. Any such price cap would be temporary and should not jeopardize security of supply or increase gas demand at a time when the EU is seeking to reduce it.
The European Commission told member states that under a possible tighter cap, member states would have to pay their gas-fired power plants a subsidy to cover the difference between the actual day-ahead price under the Dutch transfer program and the target price for gas for power generation. Unlike the mechanism in place in the Iberian Peninsula, the instrument analyzed by the commission does not include coal-fired power plants.
The subsidy will not only lower the price at which gas-fired power plants sell their electricity on the market, but will also lower the overall clearing price, cutting into revenues for utilities that generate electricity from other sources. Several member states proposed that the subsidy cap the gas price at the equivalent of the TTF price of 100-120 euros per megawatt-hour, the commission said in a statement.
According to the executive body of the EU, the costs of such a price cap will depend on the number of gas-fired power plants in individual member states. Countries that rely on the fuel to generate electricity, such as Germany, the Netherlands and Italy, will face the highest costs of the necessary subsidies. Countries importing gas-fired electricity will benefit from the system, with France the biggest winner.
To close the gap, the EU will need to create a mechanism to redistribute the costs of the price cap in line with the benefits it brings, a difficult step given the lack of reliable statistics and political challenges. EU to agree gas price ceiling with Britain - Bloomberg