FIA and several European trade associations representing energy companies, banks, liquidity providers, market infrastructure providers and clearinghouses, have written to the European Commission expressing strong concerns over the potential inclusion of a gas price cap in the forthcoming Clean Industrial Deal and the related Action Plan on Affordable Energy Prices.
This measure, if announced, could have far-reaching negative consequences for the stability of European energy markets and the security of supply across the continent. A price cap undermines the risk management function of European energy markets. When triggered, it artificially constrains the value of energy derivatives, decoupling them from the price of the underlying physical market where supply/demand dynamics may have shifted.
This disconnect impairs the ability of market participants to manage underlying price risks effectively. This increases price volatility, makes the European energy markets less attractive, and may reduce the number of market participants.
The associations strongly urge the European Commission to reject the idea of a price cap mechanism, which would undermine the objectives of the Clean Industrial Deal and progress made since the energy crisis.
Read the letter here.
