WWhile he still had doubts that the EU heads of state and government had at best postponed the dispute over how to deal with the high energy prices at their summit on Tuesday, before the meeting of energy ministers on Tuesday in Luxembourg only Federal Economics Minister Robert Habeck and his French counterpart Anges Pannier- listen to Runacher. Habeck emphasized that the EU summit had spoken out in favor of joint European gas purchasing in order to lower prices. Otherwise the EU must prevent short-term, speculative price jumps on the gas market. At least that’s how he understands the “dynamic price cap” decided by the bosses.
With Pannier-Runacher it sounded completely different. The Council had given a clear mandate to push ahead with various mechanisms, she said, and then singled out one that Habeck hadn’t even mentioned: the price cap for the use of gas in power generation. It benefits all member states equally, she emphasized. Therefore it must be pushed forward quickly. “We owe it to the Europeans, we owe our companies to make progress here.”
EU leaders picked up this “Iberian model” (because it already exists in Spain and Portugal) on Friday as one of several price-cutting mechanisms. The idea behind this is that electricity producers pay less than the market price for gas. The state pays the difference. The result is that the price of electricity falls because it is always determined by the most expensive energy source used, which is currently usually gas. Strictly speaking, it is not a matter of reducing the gas price in this case, but of the electricity price.
Price cap of 100 to 120 euros per megawatt hour of gas?
In contrast to the dynamic price cap for the gas market and joint gas purchasing, the European Commission has not yet submitted a proposal for this. There is a simple reason for this: the Commission, like the German government, is skeptical that the “Iberian model” will work at EU level. It has actually led to lower electricity prices on the Iberian Peninsula. At the same time, however, gas consumption has increased, not least because the export of cheaper electricity to neighboring countries such as France and Morocco has increased. An increase in gas consumption is the last thing the EU needs at the moment, and not just in the view of the Commission.
The Commission has therefore long argued that skimming off the special profits from green electricity and nuclear power producers and subsequent redistribution to companies and households, which was decided at the end of September, is the better way to react to the high electricity prices. At the meeting of energy ministers, however, under pressure from the state, she has at least presented a so-called non-paper in which she outlines what the Iberian model could look like at European level. The paper is available to the FAZ.
The Commission is considering a price cap of EUR 100 to EUR 120 per megawatt hour of gas. This is higher than currently in Spain, where the average annual cap is 50 euros. According to the Commission paper, a level of 100 to 120 euros could help to lower the price of electricity without making gas-fired power plants so attractive that their use increases sharply at the expense of other energy sources. In view of the current gas prices, however, this limit would have no effect. The reference point is the price for the following day (“day ahead”) of the Amsterdam gas price index TTF and is currently below 30 euros. However, if it rises again to 180 euros, the net effect of the proposed price cap could be 13 billion euros on an annualized basis. The subsidy for the gas-fired power plants is offset by the positive effect that electricity prices are falling.
“France is likely to be the biggest beneficiary”
In the Commission’s view, however, there are still unanswered questions: On the one hand, the neighbors integrated in the European electricity grid, above all Great Britain and Switzerland, would benefit from this. You could import the cheaper EU electricity. The German taxpayer, for example, would thus subsidize the British consumer. This can only be avoided if Great Britain and Switzerland also introduce the Iberian model. On the other hand, the costs would be distributed extremely unequally. Germany, the Netherlands and Italy, which use a lot of gas to generate electricity, would have high costs. On the other hand, states that imported the electricity generated in this way would benefit the most. “France is likely to be the biggest beneficiary,” the paper says.
This sheds light on why Germany and France are currently taking such different positions on this issue as well. The debate on energy prices is therefore likely to remain difficult. The EU energy ministers should – this is the declared goal – agree on specific mechanisms as early as November.
In the paper, the EU Commission also gives an outlook on how the electricity market could be reformed in the medium term in order to decouple the electricity price from the gas price. To this end, it brings into play what are known as “contracts for difference” for cheap energy sources such as green electricity or nuclear power. This would give you a guaranteed price for a certain period of time. If the market price is higher, they would have to pay the difference; if it is lower, they would be reimbursed by the state. The amount of the guaranteed price would be determined by tender.
However, this can only work if it is supplemented by a well-functioning market for short-term electricity generation, which ensures that – as has been the case up to now – cheap energy sources (including a targeted reduction in demand) are always used, it says restrictively. The Commission intends to present concrete proposals in the first quarter of next year
