EU Chief Offers Gas Price Cap Before Leaders Meeting

(Bloomberg) -- Ursula von der Leyen, president of the European Commission, signaled she’s open to discussing a temporary broad price cap on gas and called for boosting common funding for the European Union’s strategy to shift away from Russian fossil fuels.

The EU has already taken the first concrete steps to limit soaring power and gas prices, and ensure alternative sources of gas supply after Russia curbed shipments following its invasion of Ukraine. The 27-nation bloc should now move further, strengthening the RePowerEU strategy to win energy independence, von der Leyen told members of the European Parliament on Wednesday.

Von der Leyen will offer a price cap on gas used for electricity production and signal the EU’s executive arm could consider an option of a temporary, broader price limit. The latter has become a contentious issue after more than half of member states urged the commission to propose it.

“We should further boost RePowerEU with additional funding, common European funding,” she said. “This way all European states can accelerate the necessary investments, all European member states. We modernize the energy infrastructure. And we preserve the level playing field. And we secure our European competitiveness on global markets.”

The energy crunch and its impact on the region’s economy is set to be a top issue at an informal meeting of EU leaders in Prague on Friday. Von der Leyen said she plans to outline a road map on how to limit the effects of the crisis in a letter to EU leaders ahead of their meeting in Prague on Friday.

Benchmark Dutch front-month prices traded 4.5% lower at 154.70 euros per megawatt-hour by 10:12 a.m. in Amsterdam.

Market Power

One step von der Leyen will recommend is that the EU step up negotiations with trusted partners, such as Norway, to dampen the price of imported gas.

“As European Union, we have considerable market power and many of our suppliers want to conclude deals with us, which are beneficial for both sides,” von der Leyen said. “So I really think it’s necessary that we come to an agreed corridor of prices.”

The commission said in March that capping gas prices could give an important signal that the EU will not pay any price for gas, but at the same time it entailed risks in terms of security of supply. The situation has critically evolved since then and now more member states are open to it and the region is better prepared, von der Leyen said.

“Such a cap on gas prices must be designed properly to ensure security of supply,” she told lawmakers. “And it is a temporary solution to cater for the fact, that the TTF – our main price benchmark is no longer representative of our market. Introducing a cap on gas overall is a temporary solution until we have a new EU price index developed, ensuring a better functioning of the market.”

Von der Leyen will also urge member states to step up cooperation and join forces to buy gas on global markets, avoiding a situation where individual nations outbid each other.

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