…Says it may backfire
Head of the European Union Agency for the Cooperation of Energy Regulators (ACER), Christian Zinglersen, has argued that, after all, the EU’s price cap on natural gas, being an untested tool, may not achieve desired objective
The ACER director told the Financial Times that the gas price cap may not work as intended to prevent gas price spikes for European households and businesses.
The strategy is “a difficult creature. It’s unprecedented, it’s untested,” the ACER boss FT after the EU energy ministers agreed to set a cap on the benchmark EU gas price as of the middle of February 2023.
Zinglersen made it clear that he would be “reluctant to rely on this gas price cap” to protect EU consumers from price spikes.
After months of negotiations, the EU finally agreed last Monday to set a price cap on natural gas to protect consumers from excessive price spikes and limit inflationary pressure and industrial damage to European economies.
Last Monday, EU energy ministers reached a political agreement on a regulation that sets a so-called “market correction mechanism”, which would come into force on February 15, 2023.
The market correction mechanism will be triggered if the month-ahead price on the Title Transfer Facility (TTF), Europe’s key benchmark, exceeds $191 (180 euros) per MWh for three working days, and the month-ahead TTF price is $37 (35 euros) higher than a reference price for LNG on global markets for the same three working days.
The EU however agreed that if risks to the security of supply occur, the European Commission will suspend the price cap rule. The price cap could limit Europe’s capacity to continue to draw most of the global spot LNG supply, analysts say.
Some EU member states such as Germany and the Netherlands had reservations about a price cap, concerned that a market intervention and a ceiling on prices would take away Europe’s key advantage in attracting LNG supply—higher prices than in Asia. Germany agreed to back the price cap only after the EU also agreed to accelerate permitting rules for renewable energy projects, according to EU officials.