Gas prices: Brussels looks at extending ‘Iberian mechanism’ to entire EU

By Paul Messad | EURACTIV France | translated by Daniel Eck

03-10-2022 (updated: 04-10-2022 )

Alongside its work on setting up an Iberian mechanism that applies across the bloc, the Commission will also work on creating an EU index. EPA-EFE/STEPHANIE LECOCQ [EPA-EFE/STEPHANIE LECOCQ]

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Following a meeting of EU energy ministers on Friday (30 September), the European Commission will examine an EU-wide price cap on gas used for electricity generation, modelled on a mechanism already in place in Spain and Portugal.

Read the original French article here.

On Friday, EU energy ministers asked the European Commission to examine how the Iberian mechanism could be extended to the rest of the EU.

"We are now ready to introduce at the EU level a cap on the price of gas for the production of electricity;" said Kadri Simson, the EU's energy commissioner. "This, as we know, determines the actual price of electricity for consumers," she said in comments before Friday's meeting.

According to French Energy Transition Minister Agnès Pannier-Runacher, the scheme could be "implemented very quickly" and would prevent distortions on the EU electricity market.

Electricity prices in France and Spain have started diverging sharply after Iberian countries introduced the mechanism in May, putting French industry at a disadvantage relative to its EU neighbour.

To address this, France proposes introducing several gas pricing zones corresponding to highly interconnected countries. Several ‘regions’ are already being discussed, including the Iberian and Nordic ones and the ones for eastern continental Europe and central Europe.

This would prevent so-called "electricity leakage" where industrial customers in high-priced countries buy their electricity across the border where gas prices are artificially lower because of the price cap.

Nicolas Goldberg, a senior energy manager at Colombus Consulting, acknowledged the risk of leakage, which according to him, is already happening in central European countries, even though they are not well connected to Spain.

However, he also expressed doubts about the benefits of the Iberian mechanism, noting that the reduction in Spain's electricity bill was only 10%, after a fourfold increase since the beginning of the crisis.

He also pointed out that cheaper prices in Spain have pushed up gas use for electricity generation, which goes against the EU's objectives.

The European Commission acknowledged this, saying any price cap on gas for electricity generation "must be set at a level that does not increase overall gas consumption" and be accompanied by binding gas reduction targets.

"The price signal must remain. Why? Because if more gas is used, and bought on a tight global market, this will push the prices up further," Commissioner Simson warned.

Germany is reluctant as well, fearing a price cap will further strain international gas markets.

France's Pannier-Runacher acknowledged on Friday that "there is some reluctance, but we have worked on it technically so that it avoids over-consumption of gas".

"What is important is that we move forward united and in solidarity because all our production chains are connected," she added.

"If a factory stops in one country, three of its customers will also have to stop because they do not have the necessary parts," the French minister explained.

In the run-up to Friday's meeting, the French aluminium trade association warned that low-cost Spanish electricity was already distorting competition in the aluminium market.

"Either Spain stops capping its gas price, or everyone else does it," the union told EURACTIV France.

Following Friday's EU energy council, the union hailed the "good progress" made at the EU level to address those imbalances.

"We now need an Iberian mechanism at the EU level. It works, it lowers prices and it is an important solution for European industry if we want to avoid distortions of competition," the union told EURACTIV France.

Pannier-Runacher, for her part, also recalled that there would be "an informal Energy Council in Prague in two weeks, which may also be an opportunity to take stock again, or perhaps earlier".

As energy prices soared, Europe's aluminium plants began to shut down while the bloc stepped up imports from Russia and China. However, French aluminium representatives are pointing to a problem closer to home – claiming the EU-backed Iberian gas price …

[Edited by Frédéric Simon/Zoran Radosavljevic]

Languages: Français | Italian

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