EU considers price cap extension to avert winter gas crisis

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Brussels is weighing whether to prolong an emergency gas price cap introduced in February amid fears that the conflict in the Middle East and sabotage of a Baltic pipeline could push up prices again this winter.

The European Commission said there was “no indication of negative effects” since the measure had entered into force and that gas prices were now almost 90 per cent lower than last year, according to a presentation given to diplomats from the EU’s 27 member states and seen by the Financial Times.

The cap was introduced after many weeks of tense discussions among member states, with Germany and Austria having initially opposed its introduction arguing that it would distort markets and aggravate a supply crunch. But the cap did not impact gas imports to the EU, the commission’s presentation noted.

Senior EU diplomats and officials told the FT that despite the fall in energy prices and EU gas storage being at record highs, supplies this winter could be affected by the Israel-Hamas war and potential acts of sabotage to gas infrastructure.

“We don’t know what will happen this year. We have the situation in Israel and we don’t know how that will affect imports from the Middle East,” one EU diplomat said.

They added that a gas pipeline in the Baltic Sea that was sabotaged earlier this month was another concern and “it would be good to have an insurance policy”.

At the height of the energy crisis, which resulted from Moscow cutting off gas supplies to Europe in the wake of its 2022 invasion of Ukraine, prices reached more than €300 per MwH but not for a sustained period of time.

Member states ultimately agreed that the ceiling would come into force if prices hit €180 per megawatt hour for three consecutive days.

Germany is among 10 countries that have signed a paper spearheaded by Austria which instead calls for greater focus on renewable power, including an increase of the EU’s target of having 42.5 per cent of its energy derived from renewables by 2030 to 45 per cent.

The paper, sent to the commission this weekend, asks to prolong separate emergency legislation introduced during the crisis that allowed member states to accelerate permitting of wind farms and solar power parks.

“The Russian war of aggression against Ukraine also shows Europe’s vulnerability due to its dependency on non-renewable energy and critical raw material imports. This dependency is a security risk and fuels inflation with negative effects on social cohesion and competitiveness,” the paper said.

It also called for a loosening of state aid rules for renewables projects and for better connections with renewable power developments in neighbouring regions to the EU.

Germany and France are also leading a broader push for the commission to extend state aid rules that enabled governments to pay out large amounts of support to consumers facing high energy prices as a result of the war. The measures are due to end by December 31 this year.

But Belgium, the Netherlands, Denmark, Estonia and Finland said in a letter sent to Didier Reynders, the bloc’s competition commissioner, on Thursday that there was “neither the need, nor the legal basis” to extend the emergency state aid rules.

Rob Jetten, the Dutch climate and energy minister, told the FT that funding would be better used “to tackle the root cause” by investing in energy efficiency and energy savings measures.

The commission is due to present a proposal in November confirming which of the emergency energy measures, which include the gas price cap, permitting measures and regulations to ensure that gas supplies are shared among member states, should be prolonged.

Voluntary measures to cut gas demand by 15 per cent have already been extended until March 2024.