Page 8 - FSUOGM Week 38 2022

FSUOGM SPECIAL COMMENTARY FSUOGM

Source: ING Research
The best solution to solve this problem and bring market price and the price cap to a fund. If the
down power prices is to reduce power demand market clears at €400/MWh, utilities have to
to the extent that gas-fired power plants are no pay back €220/MWh, which is called the infra-
longer needed to meet demand. Unfortunately, marginal price. So, in essence, this proposal is
this is not realistic in the short term as, on aver- not a price cap for end-users, but a revenue cap
age, 23% of all the power in the European Union for utilities with low marginal cost technologies
is generated with gas-fired power plants. And the (or inframarginal technologies) like wind, solar,
shares vary considerably across Europe. It ranges hydro and nuclear plants.
from 42% to up to 65% in the Netherlands in the The justification for this market intervention
past 10 years, while it ranges from 2% to just 8% is that operators did not anticipate these reve-
in France. nues in their investment decisions and that they
Given that European nuclear output vol- were profitable at power prices between €50-
umes are expected to remain far below average 100/MWh. Governments also seek sources of
for some more months and that hydropower funding to alleviate the burden of high energy
reserves remain depressed, gas power plants are prices for consumers. At a European level, this
expected to continue to set the average market scheme is expected to generate up to €140bn
price. that will be used to compensate households and
businesses.
Setting the cap at €180/MWh Note that Germany has proposed a technol-
A second-best solution is capping the power ogy-specific price cap instead of a general price
price for low-cost technologies (solar, wind, cap of €180/MWh. It is still unclear if this will
nuclear and hydropower). The EU proposes a be adapted on a European level or if countries
€180/MWh day-ahead wholesale price cap for can choose their own method. The current EC
these technologies. The market still clears at the proposal sets a maximum cap of €180/MWh, so
high power price set by the gas plants, but utili- technology-specific caps seem to be allowed if a
ties need to pay back the difference between the revenue cap does not exceed €180/MWh.

Source: ING Research
based on Bloomberg
New Energy Finance
(BNEF) and Trinomics

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