EU warns against gas price caps for electricity

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© Reuters. FILE PHOTO: Gas pipeline model and EU flag, July 18, 2022. REUTERS/Dado Ruvic/Illustration/File Photo

By Kate Abnet

BRUSSELS (Reuters) – The European Commission has warned countries that a European cap on the price of gas used to generate electricity could lead to increased gas consumption and EU-subsidised electricity exports, according to a document seen by Reuters.

Energy ministers from European Union countries meet on Tuesday to discuss options for EU gas price caps, with countries still divided on whether and how to do so after discussing it during weeks.

The document shows that the Commission has shared with countries an analysis of a cap on the prices of gas used to generate electricity – a program that Spain and Portugal launched this summer after the invasion of Ukraine by Russia and subsequent EU gas supply cuts that have driven up energy costs.

The EU-wide rollout – an idea championed by France – could see EU gas demand increase by up to 9 billion cubic meters, according to the document.

It would also require measures to prevent the resulting cheaper electricity from flowing to non-EU countries like Britain and Switzerland which do not have a price cap, the document says.

Germany and the Netherlands have warned that capping prices to make gas cheaper could lead to a spike in consumption as countries rush to save fuel and replace Russian deliveries. Russia supplied 155 billion cubic meters of gas to the EU before the invasion.

The Commission said that if market gas prices were 180 euros per megawatt-hour for a year, the program could generate a net profit of 13 billion euros ($12.8 billion) and help control the inflation – but that the benefits would not be evenly distributed. Gas prices have fallen well below that level in recent days, amid mild weather and overflowing storage tanks.

France – a net importer of gas-fired electricity – would be the biggest beneficiary of gas price caps in the electricity sector, according to the document.

Germany, the Netherlands and Italy, which generate significant volumes of gas-fired electricity, would face the highest costs to fund the program, the document says, which does not specify how the mechanism would work. EU-wide would be funded.

($1 = 1.0131 euros)

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