The EU agreed to limit gas prices, but some analysts are skeptical
Pipes run along a technical facility for compressing natural gas on the site of astora GmbH’s Rehden natural gas storage facility, the largest in Western Europe.
Picture Alliance | Picture Alliance | Getty Images
The European Union Monday concluded two months of heated talks over how to protect households from rising energy prices — but some analysts argue the bloc’s solution is unsustainable and might not withstand the realities of a 2023 gas supply crunch.
EU members compromised by adopting a “dynamic” cap on the price that can be bid for front-month gas contracts on Europe’s benchmark trading facility.
The level at which the cap is triggered was lowered to 180 euros per megawatt hour, after an initial proposal of 275 euros per megawatt hour was criticized as far too high by countries including Poland, Spain and Greece.
The 180 euro limit must be surpassed for three working days on the Dutch Title Transfer Facility (TTF), and it must be 35 euros per megawatt above the global reference price for liquefied natural gas over the same period.
Several conditions were inserted to allay the concerns of members such as Germany, which had argued that the scheme could result in gas shortages next year. These clauses prompt an automatic suspension of the cap and include the dynamic bidding rate dropping below 180 euros per megawatt hour for three consecutive working days, or the European Commission declaring an emergency.
Germany eventually voted in favor of the so-called “market correction mechanism,” but the Netherlands and Austria abstained.
Austria’s ministry for climate action said in a Tuesday statement that while it was “confident that the market correction mechanism can play an important role to avoid extreme spikes in European gas prices, the last minute extension of the mechanism on more gas hubs than the TTF does issue some concerns.”
The ministry noted that “there are some risks that the necessary safeguards are undermined by this extension.” Austria depends on Russian gas.
Rob Jetten, Dutch energy minister, said that the mechanism remained “unsafe” despite the latest improvements. He flagged that it could disrupt the European energy market, risk security of supply and have wider financial implications.
“From its inception, we have been very clear about this mechanism: it does not solve the core problem,” he said, adding that the Netherlands’ concerns were shared by the European Central Bank and by ICE (Intercontinental Exchange), the operator of the key natural-gas market in Europe.
The ECB earlier this month said “the current design of the proposed market correction mechanism may, in some circumstances, jeopardize financial stability in the euro area.” It declined to provide further comment to CNBC following the EU announcement.
ICE said in a statement it had “consistently voiced concerns” about the destabilizing impact of a price cap. It added that it would now review the details of the EU announcement to see whether it “can continue to operate fair and orderly markets for TTF from the Netherlands as per our European regulatory obligations.”
Easy to overturn?
The EU argued the mechanism will be monitored regularly and can be stopped if financial stressors or supply challenges are raised, in response to concerns flagged by the likes of the ECB.
Analysts told CNBC that these conditions called into question the ability of the mechanism to limit energy price rises.
“It reflects the challenge between strong rhetoric and the realities of the security of supply,” Nathan Piper, head of oil and gas research at Investec, said by phone. “It’s a cap, but allows them to operate above the cap if they really need the gas. The fact on the ground is, if you need the gas, you will pay any price, which is what Europe did in 2022.”
Piper listed two possible areas of additional upcoming demand: China and Europe. Beijing this month abruptly relaxed the zero-Covid policy it pursued this year. Europe has meanwhile managed to get its gas stores near-full for this winter by continuing to import Russian gas supplies — but plans to drop this intake drastically in 2023.
Europe and Asia remain net oil and gas importers, Piper continued, which means that intense competition for spot cargoes lies ahead. Around 70% of liquefied natural gas (LNG) is tied up in long-term contracts, leaving 30% available on a spot basis.
In a Tuesday interview with Reuters, Norway’s prime minister Jonas Gahr Støre said he did not expect more Norwegian LNG to be exported outside of Europe as a result of the new EU measure.
But Piper said, “There is no motivation for spot LNG carriers [other] than the highest price. So volumes could go up elsewhere, and [European] security would be jeopardized.”
Janko Lukac, senior analyst at Moody’s Investors Service, echoed this sentiment to CNBC: “The efficiency of an unilateral cap on purchase prices from the EU is highly uncertain.”
“LNG markets globally and structurally will be short for the next couple of years. Hence, if an international buyer is willing to pay a higher price, Europe runs the risk that the respective volumes will go to another buyer,” he said.
Long-term measures
Energy Minister Rob Jetten said it was more important for the EU to focus on its electricity savings targets, on joint gas purchasing agreements and on issuing faster permits for renewable energy schemes.
Ending energy dependency was the key reason why Pavel Molchanov, managing director for renewable energy at wealth management firm Raymond James, said the mechanism was a “stop-gap measure.”
“The solution for Europe will be to diversify its energy mix away from fossil fuels entirely,” Molchanov told CNBC’s “Squawk Box Asia” Tuesday.
“As it stands, about 20% of Europe’s electricity comes from natural gas, 10% comes from coal. Both of these commodities are up dramatically as a result of the war, and the Kremlin’s weaponization of energy exports.”
Energy transition solutions — such as wind, solar and green hydrogen, as well as increasing energy efficiency and removing coal from the electricity mix — could be put on an accelerated timetable to rid Europe of natural gas concerns within five years, he said.
Ending the war premium
EU ministers in favor of the mechanism were upbeat about its impact.
Kadri Simson, European commissioner for energy, said the initiative would “take away the war premium, the mark-up compared to global LNG prices, that Europe pays” due to pricing on the Dutch TTF.
Tinne Van der Straeten, Belgium’s energy minister, said the move would ensure security of supply while protecting citizens and the economy from higher prices.
Investec’s Nathan Piper also said that there were strong reasons why Europe needed to bring down gas prices beyond the strain on households.
“Very high gas prices for multiple years will have major impacts on the competitiveness of European industry. The U.S. gas price is a fraction of Europe’s because they are self-sufficient, so industry could move to where input costs are lower,” he said. “That means a long-term risk for Europe and the U.K. if energy costs can’t come down.”
Renewables increased their output by almost 10% and provided nearly a quarter of US electrical generation in 2024, according to newly released US Energy Information Administration (EIA) data.
Solar was still No 1
Solar remained the US’s fastest-growing source of electricity in 2024. Utility-scale and “estimated” small-scale (e.g., rooftop) solar combined increased by 26.9% in 2024 compared to the same period in 2023, according to the SUN DAY Campaign, which reviewed EIA’s “Electric Power Monthly” report data.
Utility-scale solar thermal and photovoltaic expanded by 32%, while small-scale solar increased by 15.3%. Together, solar was nearly 7% (6.91%) of total US electrical generation for the year.
In December alone, electrical generation by utility-scale solar expanded by 42% compared to December 2023.
Small-scale solar (systems <1 MW) accounted for 27.9% of all solar generation and provided 1.9% of the US electricity supply in 2024. In fact, small-scale solar PV generates over five times more electricity than utility-scale geothermal.
2024 renewables milestones
The electrical output of US wind farms in 2024 grew by 7.7% year-over-year. Wind remains the largest source of electrical generation among renewable energy sources, accounting for 10.3% of the US total.
Wind and solar combined provided more than 17.2% of US electrical generation during 2024. The mix of all renewables – wind, solar, hydropower, biomass, geothermal – provided 24.2% of total US electricity production in 2024 compared to 23.2% of electrical output a year earlier.
Between January and December, electrical generation by renewables grew by 9.6% compared to the same period the year before – nearly three times the growth rate of natural gas (3.3%) and over 10 times that of nuclear power (0.9%).
In December alone, electrical generation by renewables grew by 10.1% compared to December 2023.
Wind and solar together produced 15.9% more electricity than coal and came close to matching nuclear power’s share of total generation (17.2% vs. 17.8%).
The mix of renewables reinforced their position as the second largest source of electrical generation, behind only natural gas.
“Renewable energy sources now provide a quarter of the nation’s electricity,” said the SUN DAY Campaign’s executive director, Ken Bossong. “Consequently, the rash efforts of the Trump Administration to undermine wind, solar, and other renewables will have serious negative consequences for the nation’s electricity supply and the economy.”
Read more: Renewables provided 90% of new US capacity in 2024 – FERC
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Tesla has applied for a permit to operate a ride-hailing service in California, but it will be using human drivers rather than the promised robotaxi.
Last year, Tesla CEO Elon Musk claimed that Tesla would launch “unsupervised self-driving in Texas and California in Q2 2025.”
However, we suspected that this would not be “unsupervised self-driving’ in customer vehicles like Tesla has been promising since 2016, but an internal fleet with teleoperation support in a geo-fenced area for ride-hailing services, much like Waymo has been doing for years.
Sure enough, Musk confirmed last month that this was the plan for Austin in June. We describe this as a “moving of the goal post” for Tesla.
With the focus on Austin in June, Tesla stopped talking about California, which was announced to happen at the same time as Texas last year.
Now, Bloomberg reports that Tesla has applied for a ride-hailing permit in California:
The electric vehicle manufacturer applied late last year for what’s known as a transportation charter-party carrier permit from the California Public Utilities Commission, according to documents viewed by Bloomberg. That classification means Tesla would own and control the fleet of vehicles.
But this application is for a regular ride-hailing service, like Uber, albeit for an internal fleet rather than vehicles operated by customers.
Tesla has yet to apply for a permit to operate driverless vehicles:
In its communications with California officials, Tesla discussed driver’s license information and drug-testing coordination, suggesting the company intends to use human drivers, at least initially. Tesla is applying for the same type of permit used by Waymo, Alphabet Inc.’s robotaxi business. While Tesla has approval to test autonomous vehicles with a safety driver in California, it doesn’t have, nor has applied for, a driverless testing or deployment permit from the state’s Department of Motor Vehicles, according to a spokesperson.
Musk claimed that he believes Tesla will be able to achieve “unsupervised self-driving” in California by “the end of the year”, but he has claimed that every year for the past decade.
The latest available data shows that Tesla’s Full Self-Driving system is achieving about 500 miles between critical disengagement. Tesla has stated that it believes it needs to reach 700,000 miles between critical disengagement to be safer than humans.
Electrek’s Take
This is just a step for Tesla to test ride-hailing services ahead of autonomy. A nothing burger, really, since ride-hailing has obviously been solved already by several companies, Lyft, Uber, Didi, etc.
What needs to be solved is autonomous driving.
As I have been saying for the last year, I am sure Tesla will be able to launch an internal fleet with teleoperation support in a geo-fenced area for a ride-hailing service in California later this year like it plans to do in Austin in June, but that’s nowhere near what Tesla promised since 2016.
It’s a moving of the goal post, and it’s basically just proving that Tesla is able to do something similar to Waymo – 5 years later.
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Tesla drivers in China are using the new Full Self-Driving update and are racking up fines as the system drives in bike lanes and makes illegal turns.
As we reported earlier this week, Tesla has started to release advanced driver-assist features sold under its Full Self-Driving (FSD) package in China.
The feature is called “Autopilot automatic assisted driving on urban roads” as Tesla seems more cautious about using the term “Full Self-Driving” in China, but it is a feature known for being in the FSD package everywhere else.
Tesla has been facing a lot of issues in releasing FSD features in China. The automaker has been limited in its neural net training due to restrictions about data coming in and out of the country, and it found it difficult to adapt to regulations regarding bus lanes and other China-specific road rules.
CEO Elon Musk warned that FSD in China would be a problem during Tesla’s earnings call last month due to the different rules. He mentioned bus lanes as an example:
By the way, were about the biggest challenges in making FSD work in China is the bus lanes are very complicated. And there’s like literally like hours of the day that you’re allowed to be there and not be there. And then if you accidentally go in that bus lane at the wrong time, you get an automatic ticket instantly. So, it’s kind of a big deal, bus lanes in China.
The automated ticketing system is not just for bus lanes and Tesla owners are learning about it the hard way.
Tesla owners have been testing out the features in live streams on social media and some of them are reporting getting numerous tickets for using FSD.
For example, this Tesla driver received 7 tickets in the space of a single drive because the FSD drove in bike lanes and made illegal maneuvers:
Car News China tracked several live streams and customer feedback on Chinese social media, and the consensus appears to be that it’s “pretty good, but with lots of bugs”.
The drivers are particularly impressed with how “natural” FSD drives, but they also noted that it still
Where the system lacks is the understanding of local traffic rules (such as no use of shoulder/bike lanes on turns, similar to the bus lane rules that Elon talked about in the most recent earnings call) and the sporadic use of wrong lanes (e.g. going straight in a left or right turn only lane) or navigation showing the vehicle in one lane when in fact it’s in another or wrong perception of objects (red balloons as traffic lights). Many of the live streams counted the number of traffic violations from the vehicle and the number of points that would have been taken off or licenses suspended (12 points = suspension) as a result.
Chinese media websites are now getting flooded with Tesla vehicles running red traffic lights, failing to recognize green lights, and driving on restricted lanes, like the video above.
The report also highlights how Tesla is facing strong competition in ADAS in China, with competitors like Nio, Xpeng, BYD, and others launching competitive products, which is not necessarily the case in other markets for Tesla.
Electrek’s Take
I feel like this is likely going to result in bad PR for Tesla in China. You can’t have drivers losing their licenses because FSD doesn’t recognize bike lanes.
Now, of course, Tesla will say that the driver remains responsible, but I don’t know how good Tesla’s messaging is on that front in China.
It’s going to be an interesting story to track in the coming months.
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