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ARCHIVED - EU proposes price cap on the cost of gas purchases
The limit on gas would come into play if the market experiences another dramatic increase
The European Commission has proposed setting a ceiling of 275 euros per megawatt hour (MWh) on the price of gas purchases for the duration of next year as a safeguard against escalating costs. The measure would mean gas prices would be automatically limited in the event of another unexpected rise.
The option will have to be voted on by the member states at an extraordinary meeting set for Thursday November 24 but it reflects an ongoing request for action by the Spanish government, which has already set a price cap on natural gas.
The EC’s proposal, which would come into force on January 1 and last for a year, would set a ceiling one month in advance for products of the Dutch TTF futures market, which is used as a reference index for the price of gas throughout the European Union.
The cap would be activated if the Dutch price bases reaches the maximum over two consecutive weeks, once this price increase doesn’t correspond to a similar one on the world market, and there will have to be a difference of 58 euros or more for the limit to kick in.
The overall objective, according to European Commissioner for Energy, Kadri Simson, is to "achieve an immediate effect" on the market, although the brakes can be put on the mechanism if it causes “serious disturbances.” The price cap will also be deactivated if monthly reviews show that it is no longer needed.
Europe’s energy market has been incredibly volatile since the Russian invasion of Ukraine and member states have been scrambling to secure enough gas reserves to last them through the winter.
While the EU’s proposal would certainly serve to stabilise the market somewhat, Simson has warned that it is not likely to be a “silver bullet” but rather a safeguarding measure against future exceptional and excessive price increases.
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