EU energy ministers move closer to price cap on all gas imports, but obstacles remain

A majority of EU member states have urged the European Commission to drop its original plan to cap only the price of Russian gas and instead bet on a more far-reaching cap on all gas imports.

It would be part of a series of exceptional measures designed to tame rising electricity prices, including power savings targets during peak hours and new levies on excess revenues that energy ministers endorsed at an emergency meeting on Friday.

The Commission has warned however that the price-setting proposal must not scare off suppliers and endanger the EU’s gas supply ahead of the winter season.

The latest developments were announced on Friday at the end of an emergency meeting, entirely devoted to the worsening energy crisis.

“We agreed on the necessity of urgent and robust EU action,” said Jozef Síkela, the Czech Republic’s energy minister, who presided over the meeting. “It was not an easy discussion and definitely not the last one we’re having.”

“We must ensure Putin’s manipulation and weaponisation of energy supplies will fail,” said Kadri Simson, European Commissioner for energy.

The meeting’s main focus was on power savings, which the majority of member states recognise as indispensable to address the mismatch between supply and demand and the disproportionate influence that gas prices are currently having on electricity bills.

In today’s liberalised market, the final price of power is set by the most expensive fuel needed to meet all demands – in this case: gas. This means that as gas prices soar, so does electricity, even if cheaper, clean sources contribute to the total mix.

This system, known as the merit order or marginal pricing, has been thrown into disarray by Russia’s invasion of Ukraine, leading to a growing number of calls for state intervention and market reform.

“This meeting is about finding market mechanisms to reduce the prices so that the merit order is not spoiling prices for cheap energy,” said German Vice-Chancellor Robert Habeck on Friday morning.

“We probably need to combine different tools to be effective in curbing electricity prices,” said his Spanish counterpart, Teresa Ribera.

Power savings and extra revenues

At the end of Friday’s meeting, EU ministers gave their endorsement to four of the five draft measures unveiled earlier this week by European Commission President Ursula von der Leyen.

• An EU-wide plan on electricity savings during peak hours (usually 7 am to 10 pm). Discussions are ongoing to decide if the savings should be mandatory or compulsory.
• A new cap on the excess revenues made by power plants that use sources cheaper than gas (renewables, nuclear, coal) and create extra funds to support consumers under financial stress.
• A “solidarity mechanism” to partially capture the excess profits made by fossil fuel companies (oil, gas and coal) during extraction, refinery and distribution.
• A state aid programme to inject extra liquidity into struggling utility businesses, those who bring electricity to consumers once it has been produced.

The fifth proposal, a price cap just on Russian pipeline gas, did not receive enough support to move forward.

Instead, a majority of member states came together to push for a wider cap on all gas imports entering the bloc, irrespective of their geographical origin. 

It’s still unclear if the tool would apply only to pipelines or also to liquefied natural gas (LNG), a highly valuable commodity that has become essential to diversifying away from Russian fuels in the wake of the Ukraine war.

“Give us a little bit of time to fine tune it,” said Minister Síkela.

‘Very strong competition’

By putting a price cap on all gas imports, EU countries intend to mitigate the ups and downs in the volatile energy market and ensure electricity bills stay under a certain artificial limit, regardless of demand.

The Italian and Greek ministers claimed on Friday that up to 15 member states were in favour of the far-reaching gas cap, including Belgium, Sweden and Poland.

Germany remains opposed to any sort of cap on gas prices, arguing it could incentivise consumption, and Spain believes the debate is not mature enough, Euronews understands. 

The measure is not without risks: LNG producers could simply choose to sell their products in other regions that do not have any sort of price cap. For example: Asia, where LNG is in high demand.

“We have to take care that we will not jeopardise our security of supply situation. The LNG market is global market,” Commissioner Simson said.

“There is a very strong competition at the LNG market and right now it is important that we can replace the decreasing Russian volumes with alternative of suppliers.”

Building upon Friday’s conclusions, the Commission is expected to present concrete legal texts next Tuesday. All the measures could be rapidly implemented under an emergency procedure.

Simson refused to say whether the executive would continue to advocate for a price cap just on Russian gas or if it would forego that option and choose instead the wider, indiscriminate cap endorsed on Friday.

“The decision has not been made yet,” she said, explaining her team would continue working over the weekend.

Despite her visible hesitancy around the plan, Simson admitted that “all options are on the table”.

Before discussions began on Friday morning, EU energy ministers observed a minute of silence in honour of Queen Elizabeth II, who passed away on Thursday after a 70-year-long reign.