EU countries agree on price cap for gas, but what does that mean for our bill?

From EU member states have reached an agreement on a gas price cap. That comes to 180 euros per megawatt hour. ‘A boost for the Belgian government’, says energy policy expert Moniek de Jong (UGent).

Dieter DeCleene

What exactly has been decided?

De Jong: “The European energy ministers have agreed that a market correction mechanism will come into effect as soon as the gas price on the leading TTF wholesale market exceeds 180 euros per megawatt hour for three days, and the price difference with LNG exceeds 35 euros. If these conditions are met, no prizes higher than 180 euros may be offered for twenty days. If the price drops below 180 euros again during three of those twenty days, the mechanism is deactivated.”

What does that mean concretely for our gas bill?

“Nothing in the short term, because the gas price is currently about 60 euros lower than the agreed price ceiling. But the mechanism does protect us against high bills in the event of any future price peaks.

“In any case, the price correction mechanism will only come into effect on February 15, 2023. The original ambition was to start on January 1, 2023. But probably the member states want to give the market a little more time to prepare for this. Some major trading platforms had also threatened to halt trading if they were not given enough time to do so.

“What has now been agreed is in any case a huge improvement compared to what was on the table, namely a ceiling of 275 euros that had to be exceeded for two weeks. That correction mechanism would not have kicked in even when gas prices peaked in August. While the current system would have pushed prices from the end of July to the end of September, when the wholesale price was above 180 euros.”

Why was this such a difficult delivery?

“Countries such as Germany, the Netherlands and Austria were afraid that a price cap would reduce gas to Europe and that LNG tankers would sail to Asia. Germany also feared that a single European price would bring intra-European trade to a halt and that it would have supply problems as a result. In the end, Germany agreed because it has also been agreed that permits for renewable energy projects will be issued faster than is the case today.

“There is also a kind of emergency brake that allows the mechanism to be released if the security of supply is compromised. That guarantee meets the wishes of the opponents.”

Doesn’t that option undermine the whole system?

“In theory it could, if all the major market players worked together to put pressure on Europe and drive up the price. But I doubt that is realistic. Moreover, they realize all too well that such a thing will only increase the European ambition to become independent of gas and will accelerate the energy transition.”

This breakthrough also leads to progress in other dossiers.

“Yes. The proponents of a lower price cap used that as a big stick when negotiating other measures. For example, it will now also be possible for member states to organize group purchases for gas in order to reduce the purchase price. That was something that the Netherlands and Germany wanted.”

Will the Belgian government win its battle with this?

“This is a boost for the Belgian government and Minister of Energy Tinne Van der Straeten (Green), who has been arguing for a price cap for months and has been resisting the useless ceiling of 275 euros proposed by the European Commission for weeks. The reduction in both the price and the number of days on which it must be exceeded is a good result in that respect.”

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