Prime Minister Kyriakos Mitsotakis sent a letter to Commission President Ursula von der Leyen, urging the European Commission to consider a six-point plan drawn up for the EU to regulate the wholesale gas market.
The plan of Kyriakos Mitsotakis provides the following:
1. Price Ceiling: Ceiling in the prices of the Securities Transfer Fund, which will have as a reference point the historically highest gas price before the crisis
2. Daily Price Limit as a Protective Measure: A range of fluctuations in the prices of the Securities Transfer Fund, for example of the order of +/- 10%
3. Pricing in case of Emergency: Pricing in the Securities Transfer Fund, as an emergency measure in the event of announcements concerning gas flows through pipelines from Russia
4. Profit Ceiling: A ceiling of gross profit margin in the wholesale electricity market, for example of 5%, based on the monitoring of production costs by market regulators and the Weighted Cost of Energy Production (LCOE) in production units.
5. Trade with Natural Tradition: Consideration should be given to allowing the option for a specific period of time, which will allow transactions only by physical delivery.
6. Liquidity Enhancement: Increasing liquidity in the gas market by connecting the US / EU / Asian markets. For example, by strengthening cooperation with China on liquefied natural gas (LNG) cargo, with possible transport cost ceilings to curb speculative incentives.
Read the whole letter translated from English
Athens, March 8, 2022
No.:1290
Dear President,
I am writing this letter to you about the growing economic threat to the wholesale gas market, which I believe we must address immediately and decisively in order to prevent it from having an additional cost to the lives of the citizens of the European Union, to the economies of the states. -member States and the successful implementation of the European Green Agreement.
The evolution of reference prices in the wholesale gas market in recent months, and especially since December 2021, is no longer guided by the normal forces of supply, according to a recent survey by the Agency for Cooperation of Energy Regulators (ACER) and the Group European Commission Coordination for Natural Gas. In fact, political statements and fears stemming from the Russian invasion of Ukraine, leading to uncertainty, huge price fluctuations and speculation, now play a key role in shaping prices.
The ongoing crisis in Ukraine has virtually bypassed the natural mechanisms of price formation and, unfortunately, every effort made by our Union so far to address this issue has not been able to offset the enormous burden on households and businesses. The paradox is that neither production capacity nor gas supply chains have been affected by the current crisis. This means that we do not have a problem with quantity, but we have a problem with prices.
In the medium term, this can be mitigated by reducing the Union’s dependence on Russian gas. In the short term, however, I believe that a targeted and time-limited intervention in the market is necessary in order to normalize the situation. All these measures should focus on gas prices and not on quantities, they should be implemented for a specific period of time, and they should have clearly defined activation conditions, as well as exit clauses. With such market intervention, our Union can protect its members by stopping the “instrumentalization” of natural gas to the detriment of our economies and disconnecting geopolitics from the energy crisis, without affecting the production and supply of natural gas. gas in the short term.
It should be noted that this problem is unlikely to disappear as soon as the demand for subsidies for heating gas subsides. If we do not act now, the problem will continue in electricity prices – linked to gas prices in the wholesale markets – in the coming months of spring and summer, putting a huge burden on households and businesses.
After carefully considering the options available, I would like to suggest a ‘Six Point Design. Each element of the Plan aims to address the current escalation observed in the wholesale gas market.
1. Price ceiling: A ceiling on the prices of the Securities Transfer Fund, which will have as a reference point the historically highest gas price before the crisis
2. Daily Price Limit as a Protective Measure: A range of fluctuations in the prices of the Securities Transfer Fund, for example of the order of +/- 10%
3. Emergency Pricing: Pricing in the Securities Transfer Fund, as an emergency measure in the event of announcements concerning gas flows through pipelines from Russia
4. Profit ceiling: Ceiling in the gross profit margin in the wholesale electricity market, for example of 5%, based on the monitoring of production costs by market regulators and the Weighted Cost of Energy Production (LCOE) in production units.
5. Trade with Natural Delivery: Consideration should be given to allowing the option for a specific period of time, which will allow transactions with only natural delivery.
6. Liquidity Enhancement: Increase liquidity in the gas market by connecting the US / EU / Asian markets. For example, by strengthening cooperation with China on liquefied natural gas (LNG) cargo, with possible transport cost ceilings to curb speculative incentives.
All of these options are important market interventions that have been used in the past in exceptional cases in other markets, with the aim of balancing them, while in some other markets they are fixed features. I firmly believe that unusual times impose unusual measures. These actions are aimed only at protecting the proper functioning of the wholesale gas market, which has been under great pressure due to the ever-increasing crisis in Ukraine, with serious consequences for the electricity generated from gas.
While the medium-term goal should be to return to a normally functioning market, it is the responsibility of governments and regulators to intervene when emergencies disrupt otherwise sound market mechanisms.
The Six Point Plan is designed to protect and restore the wholesale gas and electricity markets, as well as to ensure that the European Union, its citizens and the economies of its Member States, as well as the world economy, do not suffer unjustifiably at a time when it is already characterized by great challenges.
I hope you will find my reasoning and proposal timely and I remain at your disposal for a more detailed exchange of views on the issue.
Yours sincerely,
Kyriakos Mitsotakis
Sharing:
Frans Timmermans, Vice-President of the European Commission
Kadri Simson, Commissioner for Energy
Ditte Juul Jorgensen, Director-General for Energy of the European Commission
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