The EC ’ s proposal also says that the cap should apply to all market timeframes , which implies forward trades would be covered , and to both exchange and OTC , our style trading . The aim is to prevent traders avoiding the cap by changing where and what they trade .
The EC has argued that EUR 180 / MWh is well above what investors could have expected when they invested in the technologies facing the cap , including renewables , nuclear and lignite plants . It should thus not disrupt future investment decisions .
But power sector trade body Eurelectric has still criticised the proposal for jeopardising investor certainty , arguing that direct price interventions should always be a last resort . Governments should focus first on balancing supply and demand by saving gas and power , Eurelectric ’ s secretary general Kristian Ruby has said .
The EC has proposed the cap as a temporary measure to finish at the end of the coming winter . But it is also working on longer-term reforms to the power market , with proposals expected early next year . The outcome of measures taken urgently this winter are likely to influence the longerterm changes , which would normally take more than a year to agree and then more time to implement .
Less controversial among the EC ’ s emergency proposals are binding targets to cut peak demand by at least 5 % compared with forecasts , and a non-binding target to cut overall power demand by at least 10 % this winter .
These follow the EC ’ s emergency proposals in July for national governments to aim to cut their gas demand by at least 15 % compared with previous years this winter . EU energy ministers approved these with only minor changes in a matter of weeks .
EU energy ministers backed the demand cuts and revenue caps at a meeting on 30 September , while introducing more flexibility in how national governments could apply them .
The EC is working separately with EU financial authority Esma and the European Banking Authority on issues such as collateral rules to help
28 improve liquidity in the power markets , where soaring prices have left traders facing cripplingly high margin calls . Esma has cautioned against allowing commercial bank guarantees as collateral except under strict , time-limited conditions .
EU energy regulatory agency Acer is also looking at whether power exchanges ’ rules on raising maximum prices automatically should be changed to give market participants more time to adapt in extreme situations .
Capping gas prices remains the most difficult political debate . The EC has suggested capping Russian pipeline gas import prices , both to limit the revenues flowing to Russia that pay for the war in Ukraine and to help bring down power prices .
But Russian president Vladimir Putin has threatened a full cut in gas flows to the EU if it imposes a price cap , and so EU countries more dependent on Russian gas such as Austria and Hungary are against it .
The EC does not want to propose a price cap on all gas imports , as some have suggested , arguing that the EU needs prices high enough to attract LNG from other markets to offset the lower Russian flows .
Gas price caps also risk increasing demand . The Iberian measure to cap the price of gas used for power generation has led to more power being exported from Spain to France where prices remained higher . But the EC says it is ready to propose a temporary EU price cap on gas used for power generation if this could be done without increasing overall gas demand .
The key variable as to how the EU copes this winter will be the weather , says Anouk Honore , a senior research fellow at the Oxford Institute for Energy Studies .
It could be “ a relatively ok ” winter , if temperatures were mild , if LNG supply was strong , if there was an economic slowdown and if the availability of French nuclear power production improved , she says . It was a lot of “ ifs ”. n
Montel Magazine 3 – 2022