EU Edges Toward Temporary Fix to Gas Setting Power Prices

(Bloomberg) -- The European Union is moving closer to proposing a temporary overhaul of the electricity market by limiting prices of gas used for power generation even as pressure mounts for the bloc to impose a broader cap.

The European Commission, the bloc’s executive branch, will weigh over the coming days whether to put forward legislation next week that would temporarily cap the price of gas used for electricity generation, according to its energy commissioner Kadri Simson. Tougher binding gas demand reductions may also be needed, she said.

There was broad consensus to begin joint purchasing and create a new gas market benchmark to ensure a less volatile market by the start of the filling season next spring she added, with proposals on those scheduled for Oct. 18.

“We will see over the weekend how we can proceed with capping the gas for power generation,” she said at a news conference following a meeting of EU energy ministers in Prague. If talks to lower gas prices with partners fails, she added, “we need a temporary mechanism to limit prices.”

With winter approaching, time is running out to reconcile remaining differences between member states. Germany and the Netherlands will work with countries that favor caps on gas prices -- like Italy, Greece, Poland and Belgium -- to come up with a joint proposal on how to reduce prices, Dutch energy minister Rob Jetten said in an interview.

The aim is for the commission to propose a new set of policies that EU leaders can discuss at a summit in Brussels next week. Energy ministers then assemble later in October, with an emergency meeting scheduled in mid-November for countries to sign off on the plans.

Germany and the Netherlands favor immediate EU joint purchases of gas to stop countries out-competing each other, but they did open the door to a possible decoupling of gas in electricity markets, according to a non-paper seen by Bloomberg before the meeting of energy ministers. Their main concern is that such a measure could spur demand for gas, meaning extra measures to counteract that would have to be taken.

“This is the first time in weeks or months that we’ve really seen some common ground on what the key principles are,” Jetten said in an interview.

Simson said that the commission could consider making a voluntary 15% gas demand reduction mandatory, with the EU so far averaging around a 10% cut compared with previous years. The bloc has already imposed windfall taxes on energy companies’ profits and agreed power and gas-demand reduction goals. 

Fresh issuance of joint debt to help accelerate the transition from Russian fossil fuels is becoming a possibility amid signs that German Chancellor Olaf Scholz may reverse the country’s steadfast opposition. The commission will put in place a complementary benchmark to the continent’s key Dutch Title Transfer Facility by the storage filling season next spring, Simson said.

“Concerning the decoupling, I think for sure there is generalized agreement and the commission is moving in this direction,” Roberto Cingolani, Italy’s minister for ecological transition, told reporters earlier Wednesday. “Concerning capping the price of gas, everybody agrees the prices are insane. This might depend on the market engineering, but of course there are different possible solutions.”

He added: “We agree on the diagnosis, the therapy is still under discussion.”

(Updates with closing news conference starting in second paragraph.)

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