EU plans €200/MWh price cap on non-gas generated electricity

Brussels is working on a €200 a megawatt hour limit to the price of electricity generated by non-gas power producers as part of efforts to quell the EU’s energy crisis.

In a draft of proposals seen by the Financial Times, the European Commission said it recommended member states cap the price of electricity from producers such as wind farms, nuclear and coal plants, all of which are set by the high price of gas, at €200 a MWh.

The current spot price for electricity in Germany, the regional benchmark, is above €450 a MWh. Wholesale electricity prices have skyrocketed because they are pegged to the price of gas, whether or not the electric power is produced with gas or by other means. Gas prices are roughly 10 times higher than they have been compared with averages over the past decade.

Such a cap would mimic “the market outcomes that could be expected were global supply chains functioning normally and not subject to the weaponisation of energy through gas supply disruptions”, the commission said.

It said the cap should be high enough so as not to discourage future investment in non-gas producing technologies.

The document also suggests a mandatory target of reducing electricity consumption by 5 per cent during peak pricing hours — something that commission president Ursula von der Leyen put forward in prepared remarks seen by the FT on Tuesday.

Europe has seen a squeeze on natural gas from Russia, previously its biggest supplier, in response to western support for Ukraine. The Kremlin warned on Monday that supplies through the critical Nord Stream 1 pipeline, the largest between Europe and Russia, would be curtailed until western sanctions were lifted.

A common way to encourage industrial users to decrease peak power usage is via contracts that allow power distributors to reduce supply in exchange for compensation or lower future bills.

The commission’s paper warned that the incentives used must be “cost-effective”.

The proposals are to be discussed by diplomats from the EU’s 27 member states on Wednesday ahead of an emergency meeting of energy ministers on Friday.

Several member states have complained that Brussels has not acted fast enough. Some, including Spain and Italy, have pushed for the commission to decouple gas and electricity markets.

The commission declined to comment.