EU to Debate Radical Energy Intervention Tools as Crisis Worsens


The deepening energy crisis is pushing the European Union to consider unorthodox measures to rein in soaring power and gas prices, ranging from gas-price caps to a temporary suspension of power derivatives trading.

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(Bloomberg) — The deepening energy crisis is pushing the European Union to consider unorthodox measures to rein in soaring power and gas prices, ranging from gas-price caps to a temporary suspension of power derivatives trading.

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The Czech Republic, which sets the political tone of EU discussions as the holder of its rotating presidency, is set to include those tools on a list of potential emergency intervention options, according to a draft document seen by Bloomberg News. The document will be a starting point for discussions when energy ministers gather on Friday for an extraordinary meeting to address spiking electricity prices and Russia’s moves to limit natural gas supplies to Europe.  

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The 27-nation bloc suffered a new blow when Russia’s Gazprom PJSC suddenly reversed its plan to resume flows through the Nord Stream pipeline over the weekend. European leaders have been bracing for the prospect of supply cuts for months, pledging to cut gas demand and seeking alternative sources of supply, but rationing now looks inevitable with countries unable to make much of a dent in energy usage.

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Europe is racing to stave off an energy crunch that’s threatening to become an economic and even financial crisis too. Nordic authorities moved this weekend to bolster the liquidity of utilities struggling with collateral requirements, saying there was a risk of a Lehman moment. Germany — the country most affected by the Nord Stream cutoff — unveiled a $65 billion package to protect consumers.

“It is clear that the upcoming heating season will test the resilience of the EU energy market,” the Czech presidency plans to tell member states according to the draft document for the emergency meeting. “It is critical to take stock of market developments and identify possible measures to address high electricity prices driven by high gas prices.”

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Read more: Europe Looks Set for Energy Rationing After Russian Gas Cut

The options the Czech government is set to suggest would complement measures floated by the European Commission in a policy note seen by Bloomberg News last week. They included a power-demand reduction and price caps on renewables, nuclear and coal. The presidency is poised to propose similar solutions in the power sector and float the following additional tools:

  • To limit the impact of gas prices on power prices:
    • temporarily capping the price of gas used for electricity generation
    • putting a price ceiling on gas imported from Russia
    • temporary exclusion of power production from gas from merit order and price setting on the electricity market could also be an option
  • To increase liquidity on the market:
    • an urgent Europe-wide credit line support for market participants faced with very high margin calls
    • capping the limits for margining or automatic price ceiling adjustment
    • temporary suspensions of European power derivatives markets.

The Czech presidency is also set to suggest an assessment of how the EU could use its carbon market to address high electricity prices and ensure a quick deal on a commission proposal earlier this year to sell some permits withdrawn from the market and kept in a special reserve. Such sales would boost supply of emission prices, helping lower their prices.

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