The European Commission is examining the possibility of establishing a regulated maximum price for fossil gas delivered to European consumers and businesses in the event of a sudden, large-scale or total disruption of Russian gas supplies to the EU, says a draft communication for 18 May.
The Communication on the functioning of the European energy market aims not only to identify new short-term measures (national and European) to effectively combat soaring energy prices or to deal with a possible disruption of gas supply, but also to present options for optimising the functioning of the European electricity market. The aim is to make this market more resilient to future price volatility and adapted to the future decarbonised energy system with an increasing share of renewable energy in electricity production.
Among the short-term measures to mitigate the impact of persistently high prices for consumers, the Commission is considering allowing Member States to extend the regulation of retail gas prices. The institution believes that this measure could be “particularly relevant” where gas plays a particular role in heating and industry.
However, Member States should ensure that this regulation is limited in time and volume covered “to avoid increased gas consumption as much as possible”.
The Commission also suggests establishing common principles to prepare at European level for a possible disruption of Russian gas supplies to several Member States resulting in a regional or EU-wide emergency.
In its view, such a situation “could call for a reduction of gas demand even in Member States less directly impacted so as to ensure supply for essential functions or sectors in more directly impacted Member States”.
The Commission will therefore assess to what extent legislative changes would be necessary to ensure a harmonised approach in case of an emergency and calls on Member States to speed up the adoption of measures to prepare for a possible disruption of Russian gas supplies.
According to the Commission, a regulated maximum price for fossil gas delivered to European consumers and businesses may be necessary to cover the period of the emergency declared in the Union.
One possibility “would be to limit price formation during this disruption scenario by capping the price on European gas exchanges”, the draft states, while recalling the players’ forecasts for energy price developments.
These are expected to remain high for the rest of 2022 (with gas prices around €100/MWh until the end of next winter) and until 2024-2025, but “to a lesser extent”.
For the Commission, the gas price cap should be carefully set at sufficiently high levels above any historical market price level (excluding excessive prices) “to minimise negative effects”.
In particular, the institution is concerned that the announcement of an emergency gas price cap will lead to a decrease in gas storage injections today and deteriorate the EU’s ability to attract gas and liquefied natural gas (LNG) supplies from suppliers other than Russia.
Short-term measures in the electricity market
The draft also presents other short-term measures that can be applied in the wholesale electricity market. However, these should be temporary, i.e. not go beyond the next heating season or starting 1 June 2023.
The Commission considers that fiscal or regulatory measures to capture the excessive profits of some electricity producers - generated by very high energy prices - and to use the revenues to finance temporary measures in favour of vulnerable households and businesses can be justified. “Those measures can be extended beyond 30 June 2022 to cover the next heating season”, the draft states.
The temporary extension of regulated retail prices is also an option “to be considered”, according to the Commission, to also cover small and medium-sized enterprises.
No revision of the electricity market in sight
While some Member States, such as France and Spain, are pushing for reform of some of the rules governing the functioning of the EU electricity market, the institution still does not seem to be keen on the idea.
“The Commission considers that, based on the ACER report (see EUROPE 12942/8) and its outreach to stakeholders, the current electricity market design delivers an efficient, well integrated market, allowing Europe to reap all the economic benefits of a single energy market, ensuring security of supply and sustaining the decarbonisation process”, the draft states.
However, the paper adds that “adjustments” are needed to make the market more capable of supporting cost-effective decarbonisation of the electricity sector, offering affordable prices to consumers and resisting price volatility.
The Commission therefore plans to launch an impact assessment process with a view to adjusting, “to the extent necessary”, the legislative framework of the EU electricity market.
While the institution does not intend to reform the electricity market immediately, the draft mentions some concrete options to be implemented, including the obligation for electricity suppliers to have fixed price contracts in their portfolio of offers.
Another avenue the Commission intends to explore is ‘locational’ pricing, where prices reflect local balances between supply and demand and available transmission.
In addition, in order to combat the risks of market abuse, the Commission is ready to reopen the Regulation (1227/2011) on wholesale market integrity and transparency (so-called REMIT).
The final version of the Communication will be presented as part of the REPowerEU package on Wednesday 18 May.
See the draft: https://aeur.eu/f/1no (Original version in French by Damien Genicot)