A €100/MWh minimum price on natural gas?

The EU Commission proposes protecting European energy consumers from skyrocketing prices by setting price caps on energy.

Following that thinking I propose setting a minimum price on energy as well to drive the adoption of renewable technologies. E.g. €100/MWh heat.

Logic 1: Companies like to strategize, plan, and compete in an environment where conditions are transparent, long-term, and equal for all. In today's tumultuous market energy prices are transparent and equal for all. Just as they have always been. But predicting the future cost of energy is virtually impossible.

At the time of this writing (15 September 2022), the cost of natural gas in Europe is €213.80/MWh, the day before it was €190/MWh. Two weeks ago it was €338/MWh. This compared with a full decade 2010-2020 where the price hovered around €20/MWh (+/- €10).

Logic 2: When energy prices are volatile and unpredictable, investment decisions in new capacities become hard to make. E.g. when a company buys an energy-producing solution based on solar or wind, it is effectively hedging its energy cost for the lifetime of the solution as the entire investment is upfront. Hence, the risk of buying energy at a price much higher than competitors choosing another energy procurement strategy, thereby putting the company at a long-term cost-disadvantage, is very real.

A minimum price fixed at €100/MWh will reduce this risk, thereby making decisions about investments in renewable easier.

Logic 3: Renewable solutions need to be financed with a financing that comes with a risk premium. The more uncertain the business case is, the higher the premium. Round numbers: Every percent increase in risk premium results in ten percent increase in energy costs.

Logic 4: To be evermore cost-effective renewables need scale. To get to scale customers need to be willing to buy the renewable solutions. Decreasing risk will help this happen.

Why €100/MWh? This week German utility E.ON predicts the average price of natural gas the next four years to be €140/MWh.

In Heliac we have made our own forecast of future energy prices with a similar result. Gas futures at the TTF Exchange signal that the market expect prices to lower. However, to the price of gas needs to be added the cost of carbon emission taxes , the cost of distribution and transmission, and local taxes. On top of which should be added gas boiler losses. E.g. a standard gas boiler needs an inflow of 1.05 MWh natural gas in order to deliver 1 MWh of heat. These factors drive costs up. Calculated like this, we see the natural gas price of €213.8/MWh carrying a full cost of €247.8/MWh.

Proposing to set a lower limit for the cost of energy is likely to meet some resistance. But maybe a €40/MWh 'rebate' compared to E.ON's prediction will ease some of that discussion.

Let me know what you think. What needs to be included in the analysis? Is the proposal - or an adjusted version of it - in any way realistic? If so, who should be approached for something like this to actually happen?

Thanks for reading & commenting.