Gas price ceiling, what changes after the EU agreement? The effects on businesses and households – Corriere.it

After months of negotiations and two emergency ministerial meetings, on Monday 19 December the EU energy ministers reached an agreement on the maximum ceiling on the price of gas. An agreement made difficult by the very nature of the measure. The Twenty-seven have agreed on a ceiling of 180 euros per megawatt hour if the threshold is exceeded for three consecutive days. And the difference in price with LNG must be more than 35 euros. A series of conditions that make the implementation of this mechanism not obvious. From a political point of view, this is an important result, especially for Italy, which with the Draghi government was the first country to ask for an EU price cap, a measure also supported by the current Prime Minister Giorgia Meloni, who talked about a victory for Italy.

How does the EU price cap work? And since when does it apply?
The ceiling will apply starting from 15 February 2023 and will come into effect under two conditions: when the price of the TTF, the reference market for the EU, exceeds 180 euros per MWh for three consecutive days and at the same time exceeds 35 euros the price of LNG. Once triggered, the mechanism will remain active for at least 20 working days.The agreed solution was more interventionist than the one proposed by the EU Commission, which envisaged a limit of 275 euros/MWh in the event of exceeding it for two consecutive weeks, together with a difference between the TTF and the LNG price of 58 euros for ten days.

How much did the price on the TTF drop after the EU deal?
An initial effect of the ceiling was already seen on the evening of Monday 19 December, when gas closed on the TTF down by 7.6% on the TTF at around 106 euros per megawatt hour. Also on Tuesday 20th December there is a sharp decline, with futures dropping 4.4% to 103.75 euros, after having touched a minimum of -6%.

What will be the effects on the bills of businesses and households?
Initial assessments of the cap’s real effects on gas prices and on business and household bills are cautious, if not skeptical. In any case, experts recognize that the agreement is an important signal for the markets: the message that the EU is no longer willing to pay any price. According to Stefano Besseghini, president of Arera, the Regulatory Authority for Energy, Networks and the Environment, gas tariffs will rise immediately anyway. The start of the winter phase will certainly lead to an increase. In 15 days there will be the formation of the price, he explained. On the price cap, let’s see how the market reacts and the effects that will be determined in the medium term. Certainly the exchanges will be mitigated in some way, he added. For Besseghini, 180 euros per megawatt hour remains a high price compared to the industrial one. But finding a balance was not easy. According to Simone Tagliapietra, professor of energy, resources and the environment at the Catholic University and member of the think tank Bruegel, it is not easy to understand the final impact of the price cap at 180 euros per megawatt hour given all the safeguards envisaged.

What are the limits of the agreement?
The solution agreed by the Twenty-Seven provides for the possibility of suspending the cap in the event of a significant drop in quarterly LNG imports, a regional or EU emergency based on the regulation on security of supply or a 15% increase in gas consumption In a month. Which, in fact, means that there are several conditionalities that allow the roof to be defused. Furthermore, according to the president of Nomisma Energia, Davide Tabarelli, the EU price cap of 180 euros per megawatt hour will be very difficult to apply. We risk going into litigation with suppliers. The contracts state that the gas price linked to the quotation of the TTF does not mention the price cap. For Tabarelli, the EU roof can be a corrective, let’s hope it’s not a palliative. It seems to see a sorcerer’s apprentice. It is undoubtedly a compromise solution, inevitable in order to convince the most skeptical countries worried about losing volumes of gas, such as Germany.

What will be the next stage for the European Union?
The next step for the EU will be to decouple the price of electricity produced with renewable or nuclear sources from that produced with gas. The Commission is committed to presenting a proposal in March, explained the Minister of the Environment and Energy Security Gilberto Pichetto Fratin. The objective is to prevent the rise in methane prices from having repercussions on electricity costs, regardless of the sources from which it is produced.