The level of these caps could be based on t lysis of import
contracts and of the past evolution of gas p over the years,
for an adequate assessment of the intrinsic ity, rather than
being linked to in-progress speculations. Th uld allow a fair
remuneration for importers. By reducing gas prices, energy bills
are set to decrease consequently, with positive eff ects on the whole
European economy.In order to reinforce the Energy Union, a European-wide solution
to the issue must be proposed, rather than a series of uncoordinated
national measures, which would distort and end up dismantling
the integrated electricity market, which is based on a common
price formation rule across all of the EU.The Commission has announced a timely refl ection on the market
design that should be reformed in order to mitigate volatility and
uncertainties linked to the short-term model, in order to progress
towards models that are more consistent with the development
needs of renewables and zero-carbon technologies.Reducing gas dependency in the short- and medium-termThe recent confrontation between the West and Russia could force
Europe to lose access to 139 billion cubic meters of Russian gas.
The Russian Federation represents around 40% of gas imports in
the EU.In the short run, the European Union must coordinate its eff ort in
fi nding additional sources of natural gas through existing pipelines
and LNG terminals. Italy, for example, would benefi t from at least
two additional LNG terminals.However, this eff ort must be complemented with real solutions
that structurally decrease the need for hydro on imports, fi rst
and foremost through a more rapid adoption enewable power
plants and electrifi cation of end user consum n.Already before the gas crisis, renewables b me the cheapest
source of energy in the European Union. These resources can
be deployed in just a few months if we are able to solve the
administrative delays in the permitting process.In addition, direct electrifi cation technologies must be deployed,
which reduce the demand of natural gas in the commercial and
residential sectors. Electric heat pumps are an effi cient solution
that not only uses green electricity from the grid, but also the
ambient heat, increasing energy effi ciency and improving our
security of supply.By implementing the measures already foreseen by the Fit for
55 proposals, EU gas consumption would be lowered by 30%,
equivalent to 100 billion cubic meters, by 2030. This reduction
could reach 155 billion cubic meters leveraging on the REPowerEU
measures consisting in gas diversifi cation, more renewable gases,
frontloaded energy savings and electrifi cation.The current crisis has made the structural weaknesses of the
European energy system even more evident, stemming from its
excessive dependence on fossil fuels. European policies must lead
to a structural solution of the problem through the deployment
of renewables, which are key to cutting Europe’s dependance
on Russian gas as well as achieving stable and reduced energy
prices for consumers. Renewables are a cost-eff ective source of
electricity, as well as the main solution to tackling climate change.
With regards to structural measures, long-term price signals must
be developed and play an even greater role, helping to hedge risks
and facilitate investments.
In order to manage the emergency in the short term, it is important
for Europe to promote the measures discussed in the last European
Council meeting, therefore coordinating member State eff orts to
secure additional sources of natural gas through existing pipelines
and LNG terminals. However, to mitigate the energy price surge
we are experiencing, it is even more crucial to cut the unnecessary
eff ect on the price of gas imported by Europe caused by volatile
spot prices related to the marginal volumes transacted in the
Central European gas markets (TTF). In fact, these spot prices do
not refl ect the real cost of supply.
How to manage gas price volatility in Europe in the short
term
In Europe, the unprecedented gas crisis requires swift interventions
to limit negative eff ects on families, industries, and the growth
prospects of our continent.
Between the fi rst and second half of last year, Europe’s main gas
hub, the Dutch TTF, has shown price increases of 226%. This
caused surging prices in European energy bills during the last few
months, long before the beginning of the emergency in Ukraine,
directly and indirectly aff ecting fi nal users, both residential and
industrial activities.
The main reason for these spiraling prices is that, after the end of
lockdowns in most countries and of the COVID-induced recession,
consumption of natural gas picked up signifi cantly. At the same
time, delivery of gas from Russia to Europe remained fl at, reducing
the level of storage and increasing pressure on spot prices for
delivering additional liquifi ed natural gas.
On top of this, the eff ect on gas and electricity prices is heightened
by the confl ict in Ukraine involving the main exporter of gas to
Europe, Russia. During the last few weeks, gas prices touched the
all-time high of almost 300 euros/MWh on the TTF hub. To better
understand how this surge in marginal gas prices is the root cause
of the recent energy price increase in Europe, we must look at the
fundamentals of the European gas market.
Only a small part of the gas consumed in Europe passes through
TTF. Due to contract indexing mechanisms, however, even this
small portion infl uences the prices of a larger share of import
contracts and, in a drop-down eff ect, also of electricity. As recently
pointed out within the REPowerEU Communication and further
developed in the conclusions of the latest European Council,
thereisa growingconsensusthatintroducinga temporarycap
on the TTF prices would have immediatepositiveeffects, without
jeopardizing pipeline supplies and guaranteeing LNGsupplies
throughappropriatemechanisms.
Cutting gas addiction for long-term benefi ts
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