EU proposes gas price cap; UK to limit wind, solar revenues

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EU leaders are seeking a way of curbing soaring gas prices that are hiking electricity markets. (Image: REUTERS/Michaele Rehle)

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EU proposes dynamic gas price cap as last resort measure

The European Commission (EC) on October 18 proposed to implement a temporary "maximum dynamic price" mechanism for gas trades at the benchmark Title Transfer Facility (TTF) Dutch hub as a last resort option to curb soaring energy prices this winter.

The proposal will be discussed by European Union (EU) country leaders during a summit on October 20-21, among other new market measures that aim to curb the impact of soaring gas prices on gas and electricity markets following Russia's invasion of Ukraine. EU country leaders also plan to ask the EC to draw up a mechanism to cap the price of gas used in electricity generation, as already implemented in Spain and Portugal, according to a draft document seen by Reuters on October 19.

On September 30, EU energy ministers agreed to limit revenues from solar, wind and nuclear power generation to 180 euros/MWh ($180/MWh) from December until the end of June. The move caps revenues at less than half recent market prices but far above the running costs of most solar and wind assets.

The Council of energy ministers also agreed a mandatory demand reduction of 5% during peak hours in December-March.

EU countries have disagreed on how to curb gas market volatility.

Germany, Austria, the Netherlands, Hungary and Denmark have opposed an EU-wide cap on gas prices, fearing it could scare suppliers and reduce supply options.

Other measures to be discussed by EU country leaders include the creation of a new benchmark price for liquefied natural gas (LNG) delivered into Europe and joint gas buying among EU countries.

If the proposals are approved by EU countries, final laws are likely to be drawn up next month.

Germany to urgently implement gas price support

Germany plans to provide urgent support for consumer gas bills in a 96 billion euro ($93 billion) energy crisis package, following recommendations by a commission of experts, the government announced October 10.

The measures will be funded through a 200 billion euro ($194 billion) support package to shield consumers from surging energy prices, announced by Chancellor Olaf Scholz on September 29. EU states are looking to curb the impact of soaring gas prices on energy bills following Russia’s invasion of Ukraine. EU ministers have agreed to limit power generation revenues but have yet to agree an EU-wide cap on gas prices.

Germany's government plans to implement the commission's proposals to limit prices from March and provide households and small and medium-sized businesses with a one-off payment worth one month's gas bill this year, it said. The commission hopes the measures will curb inflation after it hit 10.9% in September.

From March until April 2024, Germany would implement a brake on gas prices for 80% of consumption, at different price levels according to market segment. Germany is looking to avoid gas supply shortages that remain a risk despite full reserves.

Germany's large industrial base makes it particularly sensitive to high gas and electricity prices.

"Prices have to come down, so the government will do everything it can," Scholz said on September 29. "To this end, we are setting up a large defensive shield."

Several EU members voiced concern over the size of Germany's subsidy package, fearing it goes against the EU's policy of a single market and a level playing field for all.

Germany to subsidise power transmission fees

Germany will pay 13 billion euros ($12.6 billion) of subsidies towards grid transmission fees to further soften the impact of soaring energy prices on consumers, finance minister Robert Habeck announced on October 5.

The fees account for around 10% of overall power costs for retail customers and around a third for industrial companies in sectors such as steel or chemicals. The government's intervention will stabilise the fees, which otherwise would have risen three-fold due to soaring wholesale prices and rising transmission costs, Habeck said.

"We are now making sure that these cost increases are absorbed, thereby preventing an additional burden for industrial companies, small and medium-sized businesses and consumers," he said.

UK to limit wind, solar revenues in deepening market intervention

The UK government plans to limit the revenue gained by wind and solar operators to help protect consumers against soaring energy prices, following the lead of the European Union.

Under the plan, revealed to Parliament on October 11, the UK will implement a temporary "cost-plus revenue limit" for renewable energy generators from January. The government is also seeking powers to allocate new contracts for difference (CFDs) from 2023 on a voluntary basis to safeguard consumers from future price rises. CFDs are long-term fixed price contracts where the generator pays the state if wholesale markets rise above the agreed price.

European countries are looking to curb the impact of soaring gas prices on electricity markets following Russia’s invasion of Ukraine. On September 30, EU energy ministers agreed to limit revenues from wind, solar and nuclear power generation to 180 euros/MWh ($180/MWh) from December until the end of June. The move caps revenues at less than half recent market prices but far above the running costs of most wind and solar assets.

Industry group RenewableUK warned the UK revenue limit must be set at a level that "doesn’t make the UK less attractive to investors than the EU, is technology neutral and has a clear sunset clause in place."

The "precise mechanics" of the UK revenue cap will be subject to a consultation launched shortly, the government said. Measures for biomass and nuclear generation are also being studied and will take into account their higher input costs and the value of dispatchable generation, it said.

Last month, Liz Truss' government froze UK household energy bills at 2,500 pounds ($2,766) this winter and next, based on typical use, far lower than the 3,549 pounds previously expected in October under consumer price regulation. On October 17, newly appointed UK Chancellor Jeremy Hunt announced the price freeze would not remain in place next year and from April would instead target "the most vulnerable" in a flurry of government U-turns aimed at reducing the UK's spending bill.

The UK government has also capped wholesale electricity and gas costs for businesses at less than half the market rate to protect companies from soaring wholesale prices.

New York needs more wind, solar to meet 2030 target

New York State must install an additional 20 GW of renewable energy capacity to meet its target of 70% renewable energy by 2030, regional grid operator NYISO said in a new report.

New York had around 40 GW of renewable energy capacity online in 2021. The state has contracted significant new capacity in recent years but a further 20 GW is required, the grid operator said.

           New York renewable energy forecast under current policies

                                                           (Click image to enlarge)

Source: NYSIO's '2021-2040 System & Resource Outlook.'

New York has set target of 9 GW offshore wind by 2035 and in June Governor Kathy Hochu awarded 22 large-scale solar and storage projects for over 2 GW of capacity in the latest state tender. Last year, Hochu expanded the state target for distributed solar power to 10 GW by 2030 and New York authorities awarded 'Tier 4' contracts to two long-distance grid projects that will transport over 5 GW of zero-carbon power into New York City.

To meet its targets, New York will require "an unprecedented pace of project deployment that will require significant labor and materials available...over a long period of time," NYISO warned.

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