In the future, EU states will be obliged to jointly order part of the gas for their gas storage facilities on a purchasing platform of the EU Commission. The Brussels authority will probably already present a corresponding draft law this Tuesday, together with other initiatives aimed at lowering the high prices. This includes, for example, a price cap on an important gas trading center. This emerges from a nine-page Commission communication, a classifying text accompanying the draft legislation, the draft of which Süddeutsche Zeitung present. The 27 heads of state and government are to discuss the proposals at their summit at the end of the week. The EU energy ministers could adopt the legal acts as early as November.
The joint gas purchase is intended to bundle the buyer power of the EU members when they buy the raw material in 2023 and 2024 in order to refill the storage before the heating season. The states should achieve better prices in negotiations with producing countries instead of outbidding each other. Large quantities are at stake: the Commission estimates that a complete cessation of Russian supplies would mean that a gap of up to 100 billion cubic meters of gas would have to be closed every year.
The authority established a purchasing platform for voluntary joint orders in April, but there has been little progress here so far. Therefore, the Commission now wants to oblige member states by EU law to fill at least 15 percent of the gas storage facilities with the help of the platform. The federal government had long expressed doubts as to whether joint orders would work, but recently turned around and called for the platform to be strengthened. This is happening now.
The Commission also wants to better prepare Europe for emergencies. The authority complains that governments have concluded far too few solidarity agreements. With these agreements, member states undertake to provide mutual assistance if the contracting party runs out of gas. The Commission now wants to adopt a standard set of rules to apply when no agreement has been signed. Countries without gas should be able to rely on receiving the raw material from other EU countries “in return for fair compensation,” according to the Commission document.
A price cap against speculators
The authority is also developing a new gas price index tailored to liquefied natural gas, abbreviated as LNG. So far, the Dutch TTF index has dominated Europe’s gas market, but it is heavily dependent on pipeline gas and therefore no longer reflects events correctly – to the detriment of consumers.
The Commission promises that the new price barometer should be ready for use in the spring. Until then, the authority wants to temporarily set a “dynamic price limit” on the TTF trading platform. So there should be a flexible upper limit for the gas price on Europe’s most important trading center for a few months. According to the paper from Brussels, this should help to avoid “extreme fluctuations and price increases” as well as speculation. Generally depressing the price level is not mentioned as a goal. This speaks for a high upper limit, but the document does not provide any details.
Many EU governments have called for a price cap, but Germany and the Netherlands warn against this approach. The critics fear, among other things, that if the limit is too low, producing countries would prefer to send their tankers with liquefied natural gas somewhere else.
Subsidies for gas power plants are risky
Some governments are also in favor of subsidizing gas purchases for gas-fired power plants across the EU. These expensive power plants drive up the price of electricity because it is based on the provider with the highest costs. Making gas purchases cheaper would lower the electricity price. Spain and Portugal have already implemented the model, but since then the gas consumption of the power plants there has increased – an undesirable side effect. The Commission will not initially propose this concept because of “some risks”, the paper says.
However, the authority promises to continue working with the governments on instruments to limit the influence of the gas price on electricity quotations. In any case, the Commission’s work program for 2023 envisages submitting proposals for reforming the electricity market in the third quarter.
EU laws could allow wind turbines to be approved more quickly
In addition, the authority is taking up a suggestion from the Dutch and German governments. In a joint discussion paper last week, the duo called for approval procedures and other bureaucratic hurdles for green electricity projects or the thermal insulation of houses to be eliminated across Europe. This should help to quickly reduce gas consumption.
In the EU, guidelines to promote green electricity and energy efficiency are going through the legislative process anyway, but the two governments complained that these legal acts were coming into force too late. Therefore, EU governments should force cuts in bureaucracy with the help of emergency legislation that can be passed quickly and without the involvement of the European Parliament. The Commission now writes in its communication that it is indeed prepared to simplify and accelerate the approval procedures for “certain green electricity projects” in the EU by regulation.