The Commission is examining the Spanish and Portuguese mechanism to propose a price cap in the event that it comes into effect amid a new increase in costs due to the arrival of the cold
The European Union will apply a mechanism to limit the price of gas, similar to the one that Spain and Portugal have had since June, albeit with some nuances with which Brussels tries to absorb the increase in the price of this raw material without the central and eastern states , more dependent on Russia. The Commission’s proposal provides for a gas market correction mechanism that will be activated to cap prices if they reach a maximum level that must be set in advance to have an “immediate” effect.
The document Brussels is working with, the first draft of which has been sent to the European partners, stipulates that the mechanism will set a ceiling one month in advance for the products of the Dutch TTF futures market (the one used as a reference to calculate the daily price of gas ) across the EU. This cap is activated if the Dutch price base reaches a maximum level to be determined in advance and if the price increase does not correspond to a comparable increase on the world market.
The proposal comes amid another escalation in natural gas prices recorded over the past week. This Wednesday, the Dutch TTF is around 125 euros/Mwh, a reference that is up to 20% higher than that of seven days ago, when it plummeted to 100 euros/Mwh. Although the price has risen, it is still far from the August record when it surpassed 300 Euro/Mwh, triggering another rise in electricity bills.
This recent increase in gas is mainly explained by the drop in temperature on the European continent and with it the need to gradually activate the heating systems in a large part of the countries. As demand increases, the price of gas begins to rise. For now, supplies are guaranteed after the massive gas purchases made by all Member States in the summer, which were precisely the cause of the historical data on gas prices in the context of the war in Ukraine.
Now Brussels’ goal is to “achieve an immediate effect” on the market, although it also removes, as a preventive measure, the possibility of suspending the mechanism if it causes “serious disruptions” to the market. In addition, the price cap is automatically deactivated if a monthly evaluation shows that the conditions for its application are no longer met. The total duration of the measure is expected to be a maximum of one year, as it must be of a temporary nature.
The proposal responds to calls from countries such as Spain and France for urgent action to deal with high energy prices, but its scope will not be known until the price caps triggering the mechanism are not specified. In this sense, the Commission recognizes that unless set at a sufficiently high level, the maximum limit could prevent the formation of a futures curve, which could affect the functioning of the markets.
The Iberian market has served as a mirror to the rest of the European countries, which were initially reluctant to apply a limit like those of Spain and Portugal. This tool has been in force since June 15, so that energy costs for Spanish consumers have not risen between 2,000 and 3,000 million euros. The cap ‘per se’ does not imply a price reduction, but it does limit any price increases if they occur. The Iberico runs until May 31, 2023.
The general lines of the correction mechanism in which Brussels works were handed over this Wednesday to the capitals, who now have until the next EU Energy Council, on 24 November, to study it and take a position. The Community Executive promised to bring forward a legislative proposal, but is hesitant to do so until Member States are listened to again.
Source: La Verdad
I’m Ben Stock, a journalist and author at Today Times Live. I specialize in economic news and have been working in the news industry for over five years. My experience spans from local journalism to international business reporting. In my career I’ve had the opportunity to interview some of the world’s leading economists and financial experts, giving me an insight into global trends that is unique among journalists.
