Russia’s war against Ukraine has triggered severe knock-on effects. One of these knock-on effects that we see is an unprecedented energy crisis. As you all know, we have been working very hard in the last months against the fallout on the energy markets. And we have made progress, we are cutting demand; we have seen now that we have been saving gas – 15% of the overall demand – in September. We have been filling our gas storages – we are now at 92%. We have been intensively diversifying away from Russia towards reliable suppliers. And one figure shows that by now, the Russian share of imported pipeline gas is down to 9%, so more or less two-thirds of the Russian supply has been cut. And as you know, we have made possible for the Member States to channel windfall profits of energy companies to vulnerable households and companies.
Thanks to this common action, we have reached our first main goal: That was to be better prepared to face this winter. On this basis, we can now take further steps towards a real Energy Union. Two weeks ago, before the Informal meeting of Heads of State or Government, I wrote a letter to the Leaders outlining the roadmap on the energy field, that we have. This roadmap includes elements that we have already put in motion. For example, the fact that we have said that we will negotiate a price corridor with our reliable suppliers, like for example Norway. But we also have other issues in this roadmap that take more time to mature and have been intensively discussed in the last weeks in various Energy Councils or summits. As a result, the College could adopt today another set of proposals. Commissioner Simson and Commissioner McGuinness will outline these exceptional and temporary measures in a moment.
Let me focus on the overall logic. We know that we are strong when we act together. Therefore, the first emphasis is that we make joint purchasing in this proposal today operational. We know that Europe’s energy demand is very large. So it is logical that instead of outbidding each other, the Member States and the energy companies should leverage their joint purchasing power. For that, we propose today legal tools for pooling energy demand at European level. What we are doing is that we are also enabling energy companies to set up a ‘gas purchasing consortium’ so that they are able to purchase gas together. And in that, we include one mandatory, one binding element: That is that we say that the aggregation of demand will be mandatory for at least 15% of the volumes that are needed to fill the storages.
Why that? Because we have seen by experience this year that it is the last 10-20%, when we fill the storages, that are the most expensive. These are typically volumes that are not secured by long-term contracts. This year, we saw our companies outbidding each other on these volumes in the spot market and thus themselves driving up prices. Therefore, we want to be better prepared for the next filling season; we want to join forces and pool this European purchasing power. Very important in that is that we will of course also involve our close neighbours like the Western Balkans or the Eastern Partnership. The second element is saving. We have been speaking a lot about it. As I said, a lot has been done in the energy savings and energy efficiency. And it is a good sign that we achieved in September a reduction of 15% of demand.
The third element is solidarity – sharing. This is crucial to be prepared in case of a full gas and electricity disruption. As you know, we have the European Security of Supply Regulation. This is in force since five years already. It requires Member States to conclude solidarity agreements with their neighbours in a certain region. Potentially, we should have 40 of these solidarity agreements. We only have 6. This is not enough in a crisis of this scope. So with this proposal today, under Article 122, we are proposing default rules on solidarity that will apply in case of emergency, as long as there are no bilateral solidarity agreements in place. We all know that European solidarity is the very best insurance policy Member States can have in a crisis. But there is also a second element: The better we are organised, the better we can make use of all the work of the last months on interconnectors, on infrastructure, on LNG terminals or on the storage. It is also a matter of being well organised among us 27. These were the first three points on pooling, sharing and saving.
Let me now look at a fourth element that is about prices. We need to tame the volatility and the extreme price hikes on the main European gas market – that is the so-called TTF. The TTF benchmark has mainly been designed for pipeline gas. But we all know that this market has dramatically changed. It has changed from pipeline initially to much more LNG by now. So the TTF that we see today does no longer reflect the true market situation. We will therefore develop a complementary LNG-specific benchmark for the next filling season. We have to bridge the time in between – between TTF now and the complementary benchmark we will have for the next filling season. Therefore, we are putting in place a mechanism to limit excessive gas prices if needed. Here, you might perhaps recall that we had in March a Communication where we were already proposing such a capping mechanism. But at that time, the proposal was not mature. We could not find majorities. But we have had a lot of discussions on that over the past months. So there is an increased understanding now between the Member States. And our approach is much more widely shared.
I am therefore hopeful that we can now progress on these very critical issues. Here, we are taking a two-step approach: Today, we are setting out a number of principles for this ‘flexible or dynamic capping mechanism’. It should be flexible enough to ensure security of supply, for example. It should be high enough so that the market is functioning and the gas is flowing, and it should be wide enough so that it is also covering the other benchmarks we have in the European Union. As soon as the Council agrees on these principles, we will flesh it out, we will come with all the details in a non-trivial approach to make it operational. Then, there is a lot on an intra-day price spike collar. But Mairead, you will detail this out. Very important, very technical. So we ask for your expertise.
Finally, let me touch upon two important topics that are not in the Article 122. All I have said right now is in the Article 122, the two other topics are in the Communication. The first one is how to limit the impact of gas prices on the electricity price. You know this model, it has been introduced in Spain and Portugal, where it has reduced electricity prices. We believe that it merits to be considered for introduction at the EU level. We are right now looking into the available data to find responses to one or two questions that are still open. But, as I said, it really merits to look deep into it and to see how we can make it operational on the EU level.
My very last point is about investments. It is not so much the actual energy situation but it is referring to the knock-on effects or impact on our economy because of the high energy prices. You know that we have introduced REPowerEU. It is perhaps important to keep in mind that, at the beginning of the war, when Putin started to weaponise gas, and this tactic was obvious to us, we decided to completely phase out Russian gas. At that time, when we had these discussions, eight months, you might remember that we were saying that it will take us years, until 2027 or 2030, to manage that. Well, it went much, much faster – as you could see from the figures I was just presenting. So this process has been massively accelerated. If the current trend, that we see, persists – diversifying away from Russian gas –, and if we keep up our action – also the saving action –, we will have received at least 65 billion cubic metres of gas from other suppliers than Russia and we will have saved 50 billion cubic metres of gas until the end of the year. That is quite a sum. And we see that this year we have a record deployment and delivery in the renewable energies. So taking all this into account, this acceleration in the transition that we see, I think we also need the same acceleration in our investment in cross-border infrastructure, and in energy efficiency and in renewables.
And here, REPowerEU comes into play. We have proposed it in May. Since then, things have changed dramatically, as I have just described. We will therefore now carry out a needs assessment for REPowerEU. We will assess what is necessary to boost this clean energy transition and how we can avoid fragmentation in the Single Market so that these investments in the clean energy transition are available in the whole European Union. This will then form the basis for Commission proposals to enhance the firepower of REPowerEU. Tomorrow, I will present these proposals to the European Parliament and then, on Thursday and Friday, to the Leaders.
EU Commissioners Simson and McGuinness on the new package of measures to fight high energy prices and ensure security of supply
Brussels, 18 October 2022
Commissioner Kadri Simson:
Thank you President, good afternoon, everyone.
The EU has been fighting the energy crisis for a year. As the crisis has evolved, we have responded together, protecting our people and businesses, directing revenues to support consumers, ensuring sufficient gas storage, reducing demand and negotiating with old and new suppliers.
These steps have helped to bring prices down, compared to the record levels in August. But they are still high and the risk of further price hikes and gas supply disruptions for this winter is real.
Presidentvon der Leyenhas already laid out very clearly the context of today’s proposals and their main elements. Let me go into some more detail.
First, the joint purchase of gas. This is a topic where the groundwork has already been done. In April, we put in place the Energy Platform and since then, we have created five regional task forces to better understand our gas needs and infrastructure opportunities.
Today, we are proposing the tools to make joint purchasing possible. This is a no-regret option, as buying together gives us more leverage. On the other hand, it is not easy to implement. Gas is in the EU usually bought by companies, not Member States, let alone the Commission. We have worked very closely with EVPVestagerand her team to find a solution that is in line with the EU competition policy.
We propose a two-step approach. First, we will aggregate the demand, pooling the gas needs of the companies willing to participate. The Commission will contract this procedure out to a service provider, who will collect the necessary data via an IT-tool.
Following that, the companies can conclude their contracts with the suppliers. They can also form a gas purchasing consortium and buy gas together, coordinating volumes, prices, delivery points and times.
There is a mandatory element, which is that the aggregation has to cover an amount of gas equivalent to 15% or their storage filling requirement.
This is around 13.5 billion cubic meters of gas – equivalent to the annual gas use of Greece, Bulgaria, Croatia and Slovenia combined. Or the joint consumption of Portugal, Ireland and Finland. So, it is a meaningful amount that would be attractive to sellers and helpful in terms of refilling storage. The participating companies will be free to aggregate and purchase more than 15%, we are only setting the absolute minimum.
But joint purchase alone will not be enough to address the level of prices we are seeing due to Russian manipulation and very tight global markets.
We need a new price benchmark that better reflects today’s market reality, better than TTF. While TTF was a good proxy for the EU gas prices when we received large amounts of Russian pipeline gas, this is no longer the case. Now, TTF prices are pushed up by infrastructure bottlenecks and regional dynamics.
We have therefore tasked ACER to immediately prepare a price assessment tool. Our proposal grants them the necessary powers to collect real-time information on all daily LNG transactions. Based on this, they can establish a benchmark by the end of March.
Until then, we propose to create a market correction mechanism that could be used to limit prices when needed. We envisage it in the form of a TTF cap – a ceiling on the maximum value of the TTF Virtual Trading Point. More work is needed, in cooperation with the Member States, to develop the details. Me and my services are ready to complete this work fast and with the right safeguards, if given the mandate by the Council.
In addition, we aim to end the excessive volatility on EU energy derivatives markets. Mairead will tell you more about this in a minute.
As we make every effort to keep prices predictable and gas flowing to Europe, we cannot exclude a real supply crisis with a shortage of gas. For this, solidarity and demand reduction are key.
In the worst-case scenario, all our Member States need to be supported by their neighbours and countries with LNG facilities. Solidarity rules will apply automatically even if the Member States don’t have a bilateral agreement in place. Solidarity should be non-negotiable.
In addition to households and other protected consumers, solidarity obligation will now also apply to critical gas-fired power plants, to avoid an electricity crisis. In case of an emergency, there will be an allocation mechanism determining how gas is distributed and at what price.
It is also absolutely critical that we continue to reduce our gas demand. In today’s proposal, we give the Member States more flexibility to do this and continue work on other fronts. For example, this Friday, I will host with IEA executive director Fatih Birol an event on helping our small and medium-sized enterprises through the crisis. Energy savings and efficiency can play a key role in this.
Increasing our energy efficiency is also a central tenet of the Digitalisation of Energy Action Plan that the Commission adopted today. Many of the solutions touched upon there are relevant to our current situation: smart meters, remotely-controlled devices and innovative renewable solutions all make energy more affordable and accessible.
As we fight the current crisis, we are laying the foundations of a cleaner and more modern energy system which will serve us well in the years and decades to come.
Thank you.
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Commissioner Mairead McGuinness:
Thank you President, and Kadri.
Good afternoon everyone. Just to focus on the financial side of the energy issues. What we are doing today is working on the nexus between energy markets and financial markets.
And as you know my role as Commissioner, it has financial stability at its very heart.
So the measures we propose – and I will give you details shortly – are both targeted and time-limited.
And they are focusing on easing the liquidity stress that some energy companies have faced in meeting their margin requirements, and on tackling the extreme price volatility on energy derivative markets.
In doing this we worked really closely with our regulators – so ESMA and national regulators – and sought their guidance as to how we could do this, mindful of the need to address the liquidity issues, but clearly mindful of the need for financial stability.
And I want to thank our finance ministers for their contribution, and indeed our work with the European Parliament is paramount to deliver.
So first I want to deal with the trading side. We’re proposing a temporary measure as part of the emergency instrument: a so-called “intra-day price spike collar”.
Now what this is about smoothing out is smoothing excessive volatility and price spikes in gas and electricity derivative markets.
It is a price collar that limits extreme changes in a short period of time.
And in that sense, it is not intending to prevent prices from moving upwards or indeed downwards, but rather to ensure that these movements are more incremental than what we observed at some times over the past months.
EU trading venues for energy derivatives will have to put such a tool in place by the end of January, under the control of national and European regulators.
But in the interim period, we will be asking EU trading venues to set up an intraday volatility tools that would broadly achieve the same result.
My second point is on the issue of collateral.
We know some energy market participants have experienced pressures on liquidity because of higher margin calls linked to rising energy prices.
Usually collateral is provided in the form of cash.
Today we are adopting a delegated act that expands the list of what these companies can use as collateral. We are doing this on a temporary basis.
Energy firms will be allowed to use uncollateralised bank guarantees.
And all market participants will be allowed to use public guarantees.
Again we’re following the advice of ESMA on this, and striking the right balance between helping energy operators and maintaining financial stability.
The third measure is also related to energy derivatives markets.
And this is an amendment to another delegated act for energy firms using OTCs – over the counter – derivatives.
We are raising the clearing threshold from €3 billion today to €4 billion.
And below this €4 billion threshold, firms using over-the-counter derivatives will not have to provide margins for the bilateral trades.
And again, this is in line with ESMA’s recommendations, reflecting the sharp price rises in energy derivatives.
On benchmarks, I think Kadri you have covered that very well and we work together on achieving the proposal you have outlined.
And clearly, also, to encourage when the benchmark is in place, that it is used so that it will impact derivative markets as well.
I believe that what we are proposing today on the nexus between the financial markets and energy will make a real difference to energy operators and to energy markets.
And in the short to medium term, that will help alleviate pressure on consumers and businesses who are experiencing energy price rises right now.
But at the same time, we are staying vigilant when it comes to financial stability.
Thank you.
Source – EU Commission
Q&A: Proposals to fight high energy prices and ensure security of supply
Brussels, 18 October 2022
How will today’s proposal limit energy prices in Europe?
Today’sproposed Council Regulationseeks to tackle excessive energy price levels through different measures that aim to prevent price spikes and manipulation, provide more transparency and stability to the market, and ensure fair prices and gas flows also in a crisis situation. It builds upon measures already in place to reduce demand, ensure alternative supplies, accelerate the roll-out of renewables, and limit the impact of electricity prices for consumers via the inframarginal price cap and the solidarity levy for fossil fuel companies agreed earlier this month.
First, the proposed Regulation advances work on anew complementary benchmark for LNG. At the moment, the pricing of LNG imports is often based on the Title Transfer Facility (TTF). The TTF is no longer an adequate reflection of market realities as it is unduly influenced by pipeline infrastructure bottlenecks in North-Western Europe and therefore Russian manipulation of natural gas supplies to the EU. The proposed Regulation tasks the European Agency for the Cooperation of Energy Regulators (ACER) to create an objective price assessment tool, no later than two weeks after the entry into force of the Regulation, and by 31 March 2022 a benchmark of the EU’s LNG imports. This would be done by collecting real-time information on all daily LNG transactions and increasing the transparency in the market.
To tackle situations of excessive natural gas prices, the Commission is seeking a mandate from the Council to create agas market correction mechanism under specific conditions. The Regulation would empower the Commission to propose a Council measure to establish amaximum dynamic price at which spot market transactions for natural gascan take place in the Title Transfer Facility (TTF). Under the proposal, other Union gas trading hubs may be linked to the corrected TTF spot price via adynamic price corridor. The measure should allow for over-the-counter gas trades, not affect EU’s security of gas supply and intra-EU flows, not lead to an increase in gas consumption and not affect the stability and orderly functioning of energy derivative markets (futures).
Furthermore, the proposed Council Regulation aims to reduce price volatility by requiring trading venues to establish anew temporary intra-day volatility management mechanism(‘circuit breaker’) aimed at limiting large price movements in electricity and gas derivatives markets within the same trading day. To ensure uniform conditions, the Commission is seeking a mandate to specify certain technical elements of this temporary measure in an implementing act, while national competent authorities would be charged with supervising its implementation. The European Securities and Markets Authority (ESMA) will be tasked to coordinate the application of this mechanism, based on reports regularly submitted by the national competent authorities. To ensure that the new mechanism is well adapted to specific features of affected derivatives contracts, trading venues should be free to apply contract-specific volatility limits while respecting the requirements set down by law.
The proposal also containsdefault solidarity rules to applybetween Member States in the absence of bilateral solidarity agreements and aprice formulato be applied to shield emergency supplies from the volatility of spot market prices. The Regulation proposes to use the average market price of the month preceding the request for assistance by the requesting Member State. This will provide certainty to the different parties and clarify the price to be applied in a context of scarcity.
The proposedjoint purchasing of gashas the potential to reduce uncoordinated bidding for gas supplies between Member States, thereby resulting in fairer access to gas and potentially lower prices. This will be particularly relevant to support the replenishment of the EU gas storages next year as most of them could be depleted by next Spring.
To tackle the impact of prices on EU consumers, the Commission also intends to give to Member States more leeway to support their companies by amending theTemporary State Aid Crisis Frameworkwhile maintaining the level playing field across the EU. We will present the amending proposal before the end of October.
The Commission is also presentingnew flexibilities under Cohesion Policyto provide support to SMEs particularly affected by energy price increases, vulnerable households and employees and self-employed. The Commission is currently discussing with the co-legislators in the framework of the ongoing legislative negotiations on theRegulation on the Recovery and Resilience Facility. The proposed changes to the Common Provisions Regulation 2014-2020 could make available up to 10% of the total national cohesion policy funds allocation for 2014-2020 (worth nearly €40 billion).
The Commission will carry out anassessment of the investment needs for REPowerEU. This assessment will cover investments in cross-border infrastructure, including critical pan-European interconnections, energy storage, energy efficiency, and renewables that are needed to speed up the clean energy transition and avoid fragmentation in the single market. It will also consider investment absorption capacity. Its results will form the basis for Commission proposals to add to the EU financial firepower for REPowerEU so as to ensure competitiveness of European industry as well as energy independence across the EU.
The Commission will alsocontinue developingwith the Member States ways to limit the impact of high gas prices on electricity prices. An EU-level solution needs to work for all Member States, addressing any unequal financial impact among them while not increasing gas consumption and managing flows beyond the EU’s border.
How quickly will these measures help European citizens and industry?
Policy measures to tackle prices and demand, and ensure solidarity in Europe send a signal to the market that the European Union is increasingly well prepared for the current energy crisis, which can reduce volatility. This can have an immediate impact on prices. In the next weeks and months, additionally, the demand reduction measures already taken as well as redistribution of revenues stemming from the inframarginal price cap and solidarity levy agreed by Energy ministers at the beginning of October should start having an impact.
The proposed Council Regulation under Article 122of the Treaty on the Functioning of the European Union helps to deliver further prompt actions to enhance security of supply and mitigate high prices in the current context of tight gas supplies due to Russia’s deliberate cuts and volatile prices.
The proposed Council Regulation requires a qualified majority vote in the Council to be approved, and its adoption will depend on the Council’s internal procedures, but recent examples have shown that Member States can act with speed on such measures. EU leaders have already acknowledged the urgent need for additional measures to prepare for possible further gas disruptions in the coming winters. Therefore, the Commission stands ready to have the proposed measures in place as soon as possible in order to provide reassurance to markets and further relief to EU households and businesses.
How will the proposed new measures strengthen the EU’s security of energy supply?
The proposed Council Regulation includes various measures to strengthen the EU’s security of supply. First, by enabling thejoint purchasing of gas. As a first step, the proposed framework, includes an obligation to pool demand of volumes of gas which are equivalent to 15% of gas storage targets. With this step, the Commission aims to develop the Union’s collective buying power, ensure more equal access to new or additional gas sources for storage filling, at more sustainable prices for companies across all Member States. The tendering of aggregated demand should be particularly beneficial for companies that previously were purchasing gas only or mainly from Russian suppliers, contributing to the EU’s diversification efforts.
Second, the proposals willenhance solidarity between Member Statesand ensure collective action. In particular, the proposal sets out the default rules and procedures that will automatically apply between Member States to implement their solidarity obligation, unless they agree on other bilateral arrangements. The proposal also widens the obligation to provide solidarity by extending it to Member States with LNG facilities. In addition, it extends the existing obligations of solidarity between Member States to cover the needs ofcritical gas-fired power plants. Member States would be able to request emergency solidarity measures when they are not able to secure the critical gas volumes needed for their electricity system. For the same reason, Member States providing solidarity should also be entitled to ensure that the operation of their own critical gas-fired power plants is not endangered when providing solidarity. The provision is aimed to avoid an electricity crisis as a consequence of a severe gas emergency.
Furthermore, the proposed Regulation strengthens the existing provisions applicable in case of a regional or Union gas supply emergency by introducing a system for price setting andcapacity allocation. Based on a Commission proposal, the Council would be able to establish a maximum price of gas in the region affected by the emergency and the allocation of gas capacities available to those Member States affected by this regional or Union emergency.
Finally, the Commission proposes to widen the possibilities to pro-actively reduce gas demand. Under the proposed Council Regulation, Member States, canreduce the ‘non-essential consumption’ of gasby protected customers under certain conditions (for example outdoor heating and the heating of private swimming pools). This would not apply to vulnerable consumers, who have no margin to reduce their consumption. Neither should it lead to overall disconnection of any protected customers. The gas saved can benefit those sectors that are essential to the functioning of society, as identified in the ‘Save Gas for a Safe Winter’ package, adopted in July. The Commission is continuously monitoring the progress in meeting the 15% demand reduction target agreed by the Council. If necessary, the Commission stands ready to trigger an EU Alert and make gas savings mandatory or even review the target if such measures prove insufficient.
How will the aggregation of EU gas demand and joint gas purchasing work in practice?
The joint purchasing of gas at EU level consists of two steps:demand aggregation and joint purchasing. It will allow the EU to use its collective purchasing power to obtain better prices from suppliers, reduce the risk of Member States and Energy Community countries outbidding each other on the market and, in doing so, driving up prices. It will ensure transparency in terms of process, volumes and timing but also help smaller and landlocked Member States in particular, who are in a less favourable situation as buyers, to secure fair and competitive access to gas. The focus will be on, but not limited to, coordinating and aggregating (pooling) demand to support the filling of gas storage facilities, in line with our filling targets for the next winters.
In practice, for thedemand aggregation, purchasing companies from across the EU and Energy Community Contracting Parties would aggregate their needs by submitting their demand for gas (in terms of volume, delivery time, duration and place) through an IT tool (bidding platform) operated by a service provider contracted by the Commission. Member States would be required to pool demand of gas volumes equivalent to at least 15% of their storage filling requirements for the following year, in line with thegas storage regulation. The service provider would then seek offers from suppliers through a tender process, using the IT tool, for volumes of natural gas sufficient to meet the aggregated demand.
Regarding thecoordinated gas purchasing, the companies that participated in the demand aggregation would decide, depending on the volume of gas obtained, as well as the price and other conditions, whether to purchase the gas. If they decide to go ahead with the purchase, they can decide to either enter the contracts individually or to form a gas purchasing consortium coordinating their positions with respect to volumes, prices, delivery points and so on, and to enter into contracts with the suppliers that offered gas. Creating a single gas purchasing consortium would offer strong buying power and increase the likelihood of achieving better prices, but more than one consortium should also be allowed to operate.
An ad-hoc Steering Board, composed by representatives of both the Commission and Member States and open to representatives of Energy Community Contracting Parties (Western Balkan countries, Ukraine, Moldova and Georgia), will oversee the whole process to ensure full compliance with security of supply, transparency and solidarity. The aim is to have the joint purchasing tool ready no later than in early spring 2023 to support the filling of gas storage ahead of the next filling season. In the future, this joint purchasing could be used to purchase renewable energy supplies like hydrogen from non-EU sources.
Will it be possible for Europe to use the demand aggregation mechanism to get gas from Russia in the future?
The possibility of using the joint purchasing mechanism for importing Russian pipeline gas is explicitly excluded. Joint purchasing has been set up in the spirit of theRePowerEU Plan, with the objective of reducing our dependence on Russian fossil fuels by fast forwarding the clean transition, enhancing diversification of supply sources and joining forces to achieve a more resilient energy system and a true Energy Union. The mechanism will support particularly those companies that were previously purchasing gas only or mainly from Russian suppliers by helping them to obtain supplies from alternative natural gas suppliers or providers in advantageous conditions.
How does this proposal enhance solidarity between Member States?
Today’s proposal widens and operationalises the existingsolidarity obligation under thesecurity of supply rules. Currently, it applies between the Member States that are directly connected or via a third country. Its application in the event of an emergency requires detailed technical and financial arrangements which need to beagreed bilaterally between Member States. However, only 6 out of the 40 bilateral arrangements required to implement the existing obligation have been agreed so far by the Member States. The proposed Regulation therefore defines the rules and procedures that will automatically apply between those Member States which have not agreed alternative bilateral solidarity arrangements.
One of the main barriers for many Member States was agreeing onfinancial compensationto be paid by a Member State requesting solidarity. This proposal removes this obstacle, as the new rules clarify which elements by default constitute a ‘fair compensation’ for solidarity in case Member States were not able to agree in advance on this compensation. The solidarity compensation will be based on the average market price of gas of the last 30 days preceding the request for assistance by the requesting Member State. The proposal also makes clear that Member States must respond within 12 hours and provide the solidarity measures agreed within 3 days.
The proposal enlarges the scope of the solidarity obligation to Member States withLNG facilities not directly connectedwith the Member State requesting solidarity, if the requesting Member States has the infrastructure necessary to receive this LNG.
Finally, this new regulation also presents a proposal for anallocation mechanism to apply in case of an EU or regional emergency. In such case, the Council should be able to decide on an appropriate allocation of the gas capacities available in the EU to those Member States affected by the emergency based on a Commission proposal.
How will the adopted solutions maintain the integrity of the internal market?
The proposal is compatible with the rules on the internal market for energy, including EU competition rules. Functioning cross-border energy markets are key to ensure security of supply in a situation of supply shortages.
To that end, the proposal specifically introducessafeguards for cross-border flowsand empowers the Commission to request a competent authority or Member State to take action in case of undue restrictions of cross-border gas flows, access to gas infrastructure, or measures endangering gas supply in another Member State.
Thejoint purchasing mechanismunder the proposed Regulation must be in compliance with the Union competition rules and maintain the integrity of the internal market. That is why, in order to effectively use the joint purchasing and to conclude gas agreements with suppliers submitting bids as a reply to the tender, companies have to coordinate conditions of the purchase, such as volumes, gas price, delivery points and time, within the limits of EU law. Gas companies and gas consuming companies participating in a purchasing consortium must ensure that the information directly or indirectly exchanged is limited to what is strictly necessary for the purposes of jointly purchasing gas, in line with Article 101 of theTreaty on the Functioning of the European Union (TFEU)In light of the exceptional circumstances, in the light of which the competition rules are applied, the Commission has indicated that it stands ready to accompany companies in the design of the gas purchasing consortium and to issue a decision, pursuant to Article 10 of Regulation 1/2003, on inapplicability of Articles 101 and 102 TFEU if relevant safeguards are incorporated and respected.
Finally, internal market fragmentation will be avoided by ensuring themarket correction mechanismfor natural gas transactions in the spot TTF market is developed in a way that would not prevent intra-EU flows.
What is the Commission proposing to tackle the impact of energy prices in financial markets?
The current stress on electricity markets is primarily due to Russia’s aggression against Ukraine and its manipulation of gas supply. This is an exceptional situation for energy markets, with some secondary effects on energy derivatives markets. Energy derivative markets play an essential role by allowing energy companies to hedge their risks e.g. the wholesale price they have to pay for their supplies or the output price at which they can expect to sell gas or electricity.
The Commission has been working closely with ESMA and the European Banking Authority (EBA) to support the proper functioning of European wholesale energy markets. Following this outreach, the Commission is today proposing a number of measures covering derivatives, trading and benchmarks, while ensuring that financial stability risks are contained and adequately mitigated.
Onderivatives,the Commission has adopted – in line with advice from ESMA – two measures designed to ease liquidity stress some energy companies are currently experiencing. The first measure will raise the commodity clearing threshold from €3 billion to €4 billion. It means that energy companies will be allowed to enter into more over-the-counter transactions without being subject to margin requirements. The second measure will temporarily expand the list of eligible assets that can be used as collateral to meet margin calls, e.g. adding public guarantees and uncollateralised bank guarantees, subject to conditions.
Ontrading, the Commission proposes atime-limited measure to manage excess volatilityin gas and electricity derivatives markets, while preserving the price formation processes. The new temporary intra-day price spike cap mechanism will avoid excessive price volatility and prevent extreme price spikes in prices on energy derivative market. Such a mechanism will ensure sounder price formation mechanism in those markets, protecting EU energy operators from large intra-day upward price movements and helping them secure their energy supply in the medium term.
Finally, onbenchmarks, the Commission is taking steps to create a LNG benchmark that better reflects the price the EU pays for its gas imports. The Commission has observed a gap price between LNG spot prices and some indexes used as a proxy for LNG imports prices into Europe and that are influenced by constraints such as the effects of pipeline deliveries, and gas manipulation by Russia. This warrants the creation of a dedicated LNG benchmark.
The Commission has, therefore, proposed to empower the ACER to collect, process and publish price assessments on LNG transactions.
To ensure the integrity of the wholesale energy market, the Commission welcomes that ACER and the European Securities and Markets Authority (ESMA) are enhancing their cooperation, with thecreation of a new joint Task Force. This will strengthen their capabilities to monitor and detect possible market manipulation and abuse, in Europe’s spot and derivative energy markets.
Why are you changing rules regarding collateral?
Most of the trading in energy derivatives is conducted on regulated (futures) markets and is cleared centrally via central clearing counterparties (CCPs). In such markets, the current regulatory framework provides the necessary safeguards to ensure financial stability, such as margin requirements for clearing between buyers and sellers: if one party defaults, the other market participants are protected from this risk.
However, amid the sharp rise in gas and electricity prices over the past year, energy companies have been required to post correspondingly higher amounts of cash collateral to CCPs as margin calls have risen in line with prices. This has resulted in problems of liquidity for energy companies.
To provide some urgent relief to those non-financial counterparties, in particular energy firms, it is important to expand the list of eligible collateral at EU CCPs as quickly as possible.
To alleviate this stress, the Commission has today adopted aDelegated Act, which allows the use of uncollateralised bank guarantees and public guarantees, under specific conditions, as eligible collateral for meeting margin calls. This measure is in line with ESMA’s proposal of 14 October 2022. This measure is temporary and will expire 12 months after entry into application. Depending on the evolution of the situation on energy derivative markets, the Commission stands ready to ask ESMA to consider an extension of those temporary measures. In addition, ESMA has issued guidance clarifying the eligibility of other assets, such as commercial paper or EU bonds, for use as collateral in meeting margin calls.
Why are you increasing the clearing threshold? What does it mean in practice?
The clearing threshold for commodity derivatives, which is a part of the European Market Infrastructure Regulation (EMIR), has not been revised since 2013. The Commission is today increasing thisthresholdto cater for inflation and the fact that the price of some derivatives and commodity derivatives have risen sharply and become much more volatile, as a result of the Russian invasion of Ukraine.
To take into account the impact of high energy prices on EU non-financial counterparties such as energy firms, ESMA has proposed that the clearing threshold for commodity derivatives should be increased from €3 billion to €4 billion. It means that energy companies will be allowed to enter into more over-the-counter derivative transactions without being subject to margin requirements.
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Source – EU Commission