The gas price ceiling was adopted by European Union governments to reduce the rise in bills. But for the EU’s experts, this may be useless for the purpose, and worse still, lead to financial instability that will be a burden to the public coffers. And on taxpayers. This is the alert launched by two European bodies, the EU Energy Regulatory Cooperation Agency (Acer) and the European Securities and Markets Authority (ESMA).
price limit
The price ceiling will come into effect in February and will come into effect if gas prices traded in the TTF take place in 2015, according to the agreement reached in Brussels after months of grueling negotiations (and fierce opposition from Germany and the Netherlands). Amsterdam (the reference index for gas from the block) will exceed 180 euros per megawatt hour for three days. Currently, prices hover around 70 euros per megawatt hour, far from peaks reached during the summer months. For some observers, the core of this decline may be due to the price ceiling: it was enough to threaten the ceiling, rein in speculation and push market operators back to softer recommendations. But for Acer and Esma, the measure, strongly supported by Italy, will have no value on price trends, at least so far.
Because prices are falling
The ceiling has so far had no impact on the financial and energy markets, according to the two institutions’ preliminary reports released yesterday. The decline in gas prices in recent months is, if anything, due to trends that were already present before the adoption of cap-setting regulation: reduced demand, mild winter, full stocks, slow response from the industry. about lowering prices. However, Acer and Esma state that it is impossible to definitively conclude the impact on invoices until the upper limit comes into effect.
Risks for EU experts
On the other hand, the discussion about the potential risks looming on the horizon is different. For example, ESMA argues that if gas prices approach the level that would trigger the limit, market participants are likely to change their behavior to avoid or prepare for triggering the limit. “While this behavior may seem plausible on an individual basis, it can trigger significant and sudden changes in the broader market environment, affecting the orderly functioning of markets and ultimately financial stability,” ESMA said. Acer comes to the same conclusion: market operators can shift their transactions to so-called “over-the-counter” contracts or gas markets outside the EU to break the ceiling. In other words, they’re going to leave the TTF, the Amsterdam stock market, and go elsewhere, even to “contracts with non-regulated maturities”, ie through the roof, Acer will always write.
According to the two EU institutions, one of the biggest risks is that there will eventually be “less liquidity” in the European market. This means serious problems for companies that sell electricity produced from gas. As already happened in Germany and other EU countries during this energy crisis, some may threaten to close their doors. For example, Berlin allocated 45.5 billion in December to bail out Uniper and Cephe (the former German branch of Gazprom). According to Esma and Acer’s reports, it’s taxpayer money that EU governments may have to resort to due to price ceilings.
Source: Today IT
Roy Brown is a renowned economist and author at The Nation View. He has a deep understanding of the global economy and its intricacies. He writes about a wide range of economic topics, including monetary policy, fiscal policy, international trade, and labor markets.
