The European Commission has laid out fresh proposals to tackle the energy cost crisis including plans for joint purchasing of gas by member states, and market interventions to reduce volatile price swings.
The package of measures is a last-ditch effort to forge a compromise between the 27 countries on how to tweak the energy market to curb spiralling costs in advance of the winter months, and bridge disagreement over whether to impose a price cap on gas.
The member states have turned to the issue of how to reform the market itself after they reached agreement last month on diverting revenues from energy companies towards struggling consumers and businesses this winter.
“We know that we are strong when we act together. Therefore, the first emphasis is that we make joint purchasing,” said European Commission president Ursula von der Leyen.
“We know that Europe’s energy demand is very large, so it is logical that instead of outbidding each other, the member states and the energy companies should leverage their joint purchasing power.”
Under the proposals, set to be discussed by national leaders when they meet in Brussels later this week, the EU 27 would jointly purchase 15 per cent of their gas storage requirements amounting to roughly 14 billion cubic metres of gas each year.
Under this plan, energy companies in EU countries would submit their gas purchase requirements to a co-ordinating service provider that is familiar with the gas market, which would then negotiate contracts for the required gas from suppliers worldwide. Gas from Russia would be excluded from such purchases.
The aim is to prevent EU member states from competing against each other for supplies and driving up prices in the market, which senior officials admit caused prices to spike as countries scrambled to fill up their storage capacities this summer.
The package proposes two temporary market interventions to curb price swings.
This includes a “dynamic” gas price limit for transactions on the main Dutch TTF European exchange, which would be temporarily triggered in emergency situations. The second is a measure that would temporarily limit price spikes on energy derivatives markets to avoid excessive intraday volatility, something that has threatened the financial stability of energy companies by forcing them to hold large cash reserves to trade.
Ireland’s commissioner Mairead McGuinness, whose team has been working on the reforms that fall under her brief as financial services chief, said the changes would not limit rises of falls in the price but rather ensure that they are more “incremental”.
She has also asked the energy and financial regulatory authorities to supply data to assess whether speculative or other activities are affecting the gas price.
“While we know that it is Russia that is the problem in terms of supply, we are also concerned to carefully look at if there is speculative activity or any activity that may need further attention,” Ms McGuinness told journalists.
The commission has also tweaked EU rules to expand the kinds of assets that energy companies can use as collateral for margin calls, and has raised the commodity clearing threshold to allow energy companies to make more transactions without needing to meet margin requirements.
The commission has also proposed a tweak to its state aid rules to make it easier for governments to support companies as they face the financial headwinds expected this winter, and allowed cohesion funding to be redirected to support citizens and small businesses.
A new European benchmark for gas is under development, intended as an alternative to the Dutch TTF benchmark, which is strongly influenced by pipeline gas and does not reflect the boom in usage of liquefied natural gas since Russia’s invasion of Ukraine.
The commission is also to propose additional reduction of gas for non-essential purposes, adding to mandatory targets agreed last month, and is to conduct an assessment on how to raise the funds required for the wholesale refitting of the EU energy system to increase efficiency, use more renewable energy, and end the use of Russian gas.
The commission laid out plans to “digitalise the energy system”, introducing digital monitoring of energy use throughout the system to gain insight and improve efficiency, and increasing the resilience of energy infrastructure to cyber attacks.
