Energy interventions proposed by the EU would add complexity and fragment the market – EFET

LONDON (ICIS) – EU member states should ensure uniform implementation of policies adopted in response to the energy crisis, the chief executive of Europe’s largest energy trading body has told ICIS.

This would prevent the fragmentation of European gas and electricity markets, said European Federation of Energy Traders (EFET) CEO Mark Copley.

Speaking to ICIS on the sidelines of Energy Trading Day in Zurich this week, Copley said national governments were churning out complex regulations at breakneck speed and warned that without clear coordination between member states there is would have multiple barriers to trade:

“An EU single market is fine, but if you have 27 incompatible sets of rules, you end up building complexity on complexity,” Copley said.

The clawback mechanism is a case where it is absolutely necessary to ensure that regulatory changes are implemented in a uniform manner.

The European Commission wants to harvest the revenue that non-gas-powered electricity generators would make above a set price cap. There have been recent indications that the Commission will allow member states to set their own price cap, a move that could create disparities between EU markets.

Copley warned that proposed measures such as price caps, windfall taxes or clawbacks aimed at raising money from non-gas producers to protect consumers will reduce the incentive to trade.

“We now have waves of intervention that come at a cost,” he said.

Copley cited the example of Spain and Portugal, which have taken some of the most interventionist measures, introducing a price cap on the cost of gas to generate electricity which will be in place until the end of May 2023. .

The impact was felt immediately after the measure was introduced in June. As expected, the price of electricity fell, but this drop came at the cost of an increase in demand for gas for power generation, which almost doubled compared to last year’s values. .

It has also created an opportunity for traders to sell relatively cheaper electricity to the neighboring premium market, France.

Copley said the proposals to modify existing benchmarks and create complementary benchmark prices seemed like “a wise idea until you start unboxing it.”

He said the amount of monitoring of trades and benchmark prices made established prices credible and difficult to replace with alternative indices.

Doug Wood, chair of the gas committee at EFET, echoed the views noting that a complementary LNG index would be much less reliable in several respects.

Firstly, he said the traded LNG market was much less liquid than mature Western European hubs, which meant that it was much more difficult to create a reliable index based on an illiquid market.

Second, he noted that many LNG contracts that would be used as a benchmark for a benchmark were outside of EU jurisdiction.

Third, Wood said the EU intended to create a lower index to attract buyers, but that didn’t necessarily mean it would also attract sellers.

Wood raised questions about the EU’s intention to set up a joint purchasing platform and its ability to negotiate prices for new gas imports.

Copley and Wood warned that in their rush to protect consumers from soaring energy bills, some member states risk adopting measures with harmful long-term consequences.

They chose Romania after the government introduced a 100% tax on electricity export income and a 98% tax on the income of gas and electricity traders in the country.

“These are very populist measures that risk isolating Romania from the rest of Europe. They will drive businesses out of the market and
[contrary to government expectations] they won’t help the Romanian people,” Copley said.

Sharon D. Cole