EU energy ministers reached a political agreement Sept. 30 on interventions designed to tackle soaring energy prices in Europe. But the package does not include a cap on gas prices, at least for now.

The agreement, which follows proposals from the European Commission earlier in September, includes measures to reduce electricity demand and generate revenue to support consumers with soaring bills.

Ministers had already agreed to ramp up gas storage reserves in the EU ahead of the winter and implement voluntary gas demand reduction targets. The commission is also pursuing a wide-ranging strategy to end dependence on Russian gas.

In an emergency meeting in Brussels on Sept. 30, energy ministers committed to going further by introducing a voluntary overall power demand reduction target of 10% and a mandatory target of 5% for peak hours.

A cap on market revenues made by inframarginal technologies such as renewables, nuclear and lignite will be brought in at €180/MWh, while fossil fuel companies will be subject to a so-called solidarity contribution to claw back excess profits.

Gas price cap a 'legitimate option'

The issue of a gas price cap was discussed without agreement. EU Energy Commissioner Kadri Simson said such a proposal is taking time "because different member states do expect different solutions, [and] the commission has to present an idea that has overall broad support."

"I do believe that the commission's role is to analyze and explain what are the necessary preconditions for this kind of cap, [and] we have done so," Simson told reporters ahead of the ministerial meeting.

At a press conference after the discussion with ministers, Simson said a gas price cap remains a "legitimate option" but requires caution. Europe will continue to require cargoes of liquefied natural gas and has to be careful not to risk supplies or jeopardize the functioning of commodity trading, the commissioner added.

Options to rein in prices include setting price corridors with trusted partners such as Norway, which has replaced Russia as the EU's biggest gas supplier since the war in Ukraine.

While Simson is pushing for a cap on Russian gas, some EU member states have balked at the idea. At the same time, Europe's gas system today contains only relatively small volumes from Russia. With REPowerEU measures and the likely sabotage of the Nord Stream 1 pipeline, flows will not resume for years, if ever.

"Currently, the Russian gas does not play the price creation role anymore as basically the consumption is negligible," Jozef Síkela, minister of industry and trade of the Czech Republic, which currently holds the presidency of the European Council, said on the sidelines of the meeting.

'We need to talk to our friends'

Negotiations on the gas price cap issue are set to continue. Proposals drawn up so far all run the risk of diverting international cargoes away from Europe, according to Leonore Gewessler, Austria's federal minister for climate action.

"We cannot conduct an experiment on the back of security of supply," Gewessler said.

In the meantime, bilateral conversations between the EU and key suppliers of LNG and pipeline gas are also ongoing, Simson said.

"We need to talk to our friends, the U.S., Norway, Algeria, to tell them that [gas] costs have to come down," Robert Habeck, Germany's minister for economic affairs and climate protection, said before the meeting.

According to Simson, a key lever now at the commission's disposal is reform of Europe's key gas price benchmark, the Dutch Title Transfer Facility, which is dominated by pipeline gas prices.

"We have started work on a complementary EU price index ... that does not artificially inflate prices," the commissioner said.

The commission is not proposing this measure lightly, Simson added. "This will not be an easy winter for us, and next winter will be even more difficult."

Investor exodus?

Of the agreed interventions, the cap on revenues for inframarginal generators has drawn mixed reaction from market players.

The EU Council said the cap is designed to address the fact that such low-cost technologies have made "unexpectedly large financial gains over the past months, without their operational costs increasing." Natural gas, as the most expensive generator, typically sets the wholesale power price in Europe.

Ministers agreed to follow the commission's proposal to give member states the ability to deviate from the cap, for instance by setting it at a higher level, introducing measures that further limit market revenues or differentiating between technologies.

This flexibility element has been repeatedly criticized by wind industry lobby group WindEurope, which said national-level intervention will discourage investment in clean energy in Europe.

"What is decided today could worsen the energy crisis," the organization said in a Sept. 30 statement prior to an agreement being reached.

Investments will now be put on hold, and some investors will look elsewhere for opportunities, WindEurope said, for instance to the U.S., where the Inflation Reduction Act provides tax credits for renewables investments.

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