Gas price cap makes progress in Europe as Hungary obtains exemption

Germany drops opposition to limiting prices by intervention in the market

European Council President Charles Michel and European Commission President Ursula von der Leyen at an EU summit in Brussels, where leaders reached an agreement on energy prices. EPA

European leaders moved closer to agreeing on capping soaring gas prices on Friday after 11 hours of negotiations despite Germany’s initial opposition and an exemption obtained by Hungary.

European Commission President Ursula von der Leyen told reporters in the early hours of Friday that leaders had had a “frank discussion” about a “potential mechanism to limit the influence of high process on the cost of electricity”.

The commission will work on analysing the possibility of capping the price of gas, as well as limiting potential leakage of cheap electricity to non-EU countries such as the UK and Switzerland. This will be further discussed by energy ministers meeting in Brussels on Tuesday.

Another priority for the EU is to implement the joint purchasing of gas to reduce prices which will enable companies to build consortiums, said Ms von der Leyen. Aggregation of demand will be mandatory for at least 15 per cent of the volume needed to fill European gas storage tanks.

Hungarian Prime Minister Viktor Orban said in a Facebook post that any EU price cap would not apply to long-term gas supply deals such as the 15-year agreement that Hungary has with Russia's Gazprom. "We got an exemption from the gas price cap so that will not jeopardise Hungary's security of gas supply,” he wrote.

French President Emmanuel Macron told reporters that he had worked closely with President of the European Council Charles Michel to overcome differences between the EU’s 27 member states, in an apparent hint at Germany’s opposition to a gas price cap.

“Preliminary discussions allowed to clarify points to obtain the agreement of Germany on the text,” he said. “We found a unanimous agreement tonight, meaning that we found a way to convince those who were most opposed to it."

Quoted by the Financial Times, German Chancellor Olaf Scholz on Friday said “it makes sense” when questioned about price caps. “We have discussed the possibility to limit price spikes,” he said. “There is still a lot of concrete work to do there.” He had previously warned that limiting prices could endanger supply.

Mr Macron said European consumers would start feeling the effect of the agreement late this month or early next month. He said European leaders approved all the energy proposals made by commission on Wednesday, enabling it to focus on technical and legal aspects of the propositions.

“Our primary objective is to bring down gas prices,” said Mr Macron. “I think we can go very fast when it comes to implementation.”

The commission has also proposed to create a complimentary energy index and a market correction mechanism to limit excessive gas prices. The commission additionally wants to make €40 billion available to support people and companies struggling with high prices caused by the energy crisis.

Ms von der Leyen said the commission’s efforts to diversify suppliers away from Russia to countries such as Norway and the US, as well as skimming excess profits made by energy-producing companies, had brought down prices.

“If you look at the price curve at the end of August, it was around €350 per megawatt hour," she said. "Since then, with all the interventions we have started and all the work we have done, we are now at a level that is between €120 and €140.

“It’s still too high,” she said.

Mr Michel, who warned of a “threat to internal markets”, said Europe was ready to “mobilise all means” to support companies and vulnerable households.