Things are really unwell following Russian gas. Many sources of energy in Europe like French nuclear power and Norwegian hydroelectricity got the impacts. Both markets and prices are sentimental, showing the greatest surge by 30% recently. A year-ahead, French and German for instance traded energy contracts for around $118 per megawatt hour or €100. These days it hikes to €1000. Although the prices were falling after that, the gas trading remains higher for as much as $400 a barrel. There is also a warning from Shell that this crisis would last longer.
Worse, the contracts are going to expire very soon but the new contract does not have any good sign. Thus, price surge would spread wider across Europe. The European Central Bank, as a result increases interest rates in order to adjust inflation. Moreover, there is also a signal from many experts that recession would occur in the near future. Plus, the single currency is at the lowest level against the dollar for the first time in two decades.
Furthermore, European Commissions also respond, but it is less ambitious. The agency’s latest idea covers a cap on the price of energy to generate electricity. This would become the discussion topic at a summit of ministers this month. The European Commission is also looking for the power market overhaul. This is in order to spot prices unaffected by the costs of marginal producers.
Based on The Economist analysis, the price cap is agreeable but it could somehow be counterproductive. The reason is that the ceilings do not curb demand for rare energy. A study observed that a cap in Spain impacted a 42% increase in gas-fuelled generation.
