EU Proposes 200 Euro Price Cap On Non-NatGas Generated Electricity

A draft proposal by Brussels looks to intervene in the worsening energy crisis by placing a price cap on electricity generated by non-natural gas power producers, according to Financial Times.

The European Commission urged member states to cap the price of electricity via wind farms, nuclear reactors, and coal plants, all of which generate power free of NatGas, at a 200-euro megawatt hour limit. 

Enforcing such a price cap would lead to “market outcomes that could be expected where global supply chains functioning normally and not subject to the weaponization of energy through gas supply disruptions,” the commission said in the draft proposal. 

FT pointed out that wholesale electricity prices in Germany skyrocketed because they’re pegged to NatGas, even though some electric power is generated by other sources. 

The draft also said EU members should reduce electricity consumption by at least 5% during peak hours amid an energy crisis worsening by the week. 

Russia’s latest move against Europe closed the Nord Stream 1 pipeline. Moscow said the critical NatGas pipeline to Europe wouldn’t reopen until the “collective West” lifts sanctions against Russia over its invasion of Ukraine. 

EU energy ministers are due to meet on Friday to discuss historical intervention in the energy market. 

“A leaked EU draft proposal includes an electricity price cap on inframarginal profits… If true, we would see it to be a better-than-expected outcome for generation companies,” Jefferies analysts wrote in a note. 

Following the news, utilities and renewable energy stocks surged in Europe. 

Credit Suisse senior analyst Jens Zimmermann said the draft proposal seems positive for utilities, such as “RWE.” 

“Even under a price cap, upward EPS revisions have now become more likely as RWE’s consensus forecasts were never based on the recent sky-high power prices,” Zimmermann said. 

RBC analyst Fernando Garcia said the electricity price gap “is quite high, clearly above levelized cost of electricity” and could be high enough not to discourage future investment in non-NatGas generators. 

It appears the plan could remove uncertainty for utility companies.  

FT noted: “Several member states have complained that Brussels has not acted fast enough. Some, including Spain and Italy, have pushed for the commission to decouple gas and electricity markets.” 

The proposal for price caps on non-NatGas derived electricity comes as the utilities across the continent face a massive margin call.