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Op-Ed Dr. Bernd Weber for Euractiv: EPICO Paper „What to cap? Emergency Interventions in the European Electricity and Gas Market“.

The European Union is discussing strategies to reduce electricity bills. In our view, there are three solutions to address the current acute energy crisis without overhauling market design.

One is a carefully calibrated uniform profit cap for inframarginal power producers with an exit mechanism, efficient dispatch across markets involving financial transactions.

Price developments in the gas market can be regulated by a price cap. Accordingly, all market participants could purchase gas at a defined maximum price through the transmission system operators (TSOs). Such a measure would provide clarity on price developments in the event of supply interruptions and can thus largely reduce the risk premiums on forward prices.

This would need to be complemented by instruments such as premiums or contracts for difference to ensure continued sufficient volumes of LNG supplies to the EU. In addition, an EU-wide price cap must be combined with binding gas savings targets. This would provide the basis for member states to implement programs and measures to reliably achieve gas savings.

Read the full Article here.