Today, 31 January, marks the final day of the EU’s gas Market Correction Mechanism (MCM).
Established by the MCM Regulation in December 2022, in the midst of the energy crisis, this mechanism was designed to protect EU citizens and the economy against excessively high energy prices.
It tasked ACER with the calculation and publication of a daily MCM reference price. It entered into force on 1 February 2023 for an initial year and was later extended to 31 January 2025.
What is the MCM?
The MCM was a safeguard to cap gas prices in the EU. It would activate only if:
Gas prices at EU hubs exceeded €180/MWh for three consecutive working days.
These prices were at least €35/MWh higher than the MCM reference price during the same period.
Upon activation, a bidding limit would cap gas trading prices to protect the market from further escalation.
The MCM was never activated, as market conditions never met these thresholds.
The MCM’s effects on energy and financial markets have been closely monitored by ACER and by ESMA (European Securities and Markets Authority) respectively – no significant impacts on the market have been directly attributed to it.
Read more about the MCM.
Brief
"On 31/01/2025, the European Union Agency for the Cooperation of Energy Regulators (ACER) issued an update regarding 31 January marks the final day of the Market Correction Mechanism (MCM). The MCM was a safeguard to cap gas prices in the EU, designed to protect citizens and the economy against excessively high energy prices. It remained unused due to market conditions not meeting activation thresholds."
Highlights content goes here...
Purpose:
The EU’s Gas Market Correction Mechanism (MCM) has been deactivated, marking the final day of its operation on January 31. The MCM was established to protect EU citizens and the economy from excessively high energy prices by capping gas prices in the event of a price surge.
Effects on Industry:
The deactivation of the MCM has significant implications for the European energy market. As the mechanism was never activated, its effects on the industry have been minimal, with no notable impacts on energy and financial markets attributed to it. However, the mere presence of the MCM may have influenced market behavior, as traders and investors were aware of the potential price cap. The deactivation of the MCM is likely to lead to a sense of stability in the European energy market, allowing for more free-market-driven price fluctuations.
Relevant Stakeholders:
The stakeholders affected by the deactivation of the MCM include:
- Energy companies operating within the EU
- Consumers who were protected by the MCM’s price cap
- Investors and traders who monitored the MCM’s potential impact on the market
These stakeholders will need to adjust their strategies in light of the MCM’s deactivation, potentially leading to changes in energy pricing, trading, and investment decisions.
Next Steps:
The European Commission and regulatory bodies will likely continue to monitor the EU energy market for any signs of price volatility or manipulation. The absence of the MCM may lead to increased scrutiny on energy companies to ensure they are operating fairly and transparently.
Any Other Relevant Information:
The deactivation of the MCM marks the end of a unique experiment in regulating the European energy market. While it was never activated, the MCM’s presence served as a safeguard against extreme price fluctuations, providing a sense of stability for consumers and investors. The lessons learned from the MCM may inform future regulatory approaches to managing energy markets.
