(Bloomberg) -- A number of European Union nations are pushing for a price cap on natural gas used to generate power, but the bloc’s executive arm is warning that any such step would need to avoid boosting demand or subsidizing electricity to foreign consumers. 

The European Commission issued the caution ahead of a key ministerial meeting on Tuesday, according to a person familiar with the matter. The bloc’s executive arm is advising EU members that such a price limit would have to be extended to power-importing countries like the UK or Switzerland for it be effective, the person added.

Alternatively, the EU would have to export electricity at a higher price than in domestic trades, a move prohibited in a number of international agreements with partners, said the person, who asked not to be identified as talks on the issue are private. The commission circulated its view in the form of a document summarizing the costs and benefits of such a price cap.

Caps on gas prices top the political agenda in Europe as governments seek to rein in an unprecedented energy crisis triggered by a cut of gas shipments by Russia, the continent’s former biggest supplier. EU leaders last week agreed to press ahead with a package of measures to lower soaring gas and power bills that fuel inflation, threatening to push the 27-nation bloc into a recession.

Some countries are worried that the EU isn’t moving swiftly enough to address the energy price shocks and market distortions.

“Time matters and we have to be fast, and I won’t hide that I’m slightly disappointed that we’re not going forward as fast as possible,” Jozef Sikela, industry minister for the Czech Republic, which holds the EU’s rotating presidency, told reporters Tuesday. “The game is not over and the winter is coming.”

While a majority of countries are demanding a broad cap on wholesale gas prices -- introduced through a corridor on the region’s biggest virtual marketplace -- a smaller group of nations wants to limit prices of gas used for electricity generation, similar to a model already implemented by Spain and Portugal. To enter into force, any EU cap would yet have to be proposed by the commission and then win approval from member states.

Such a process would take at least several weeks. In the first step, the bloc’s energy ministers need to reach an agreement on a regulation proposed by the commission on Oct. 18 and pave the way for market intervention, a move that could take place at an emergency meeting expected toward the end of November. 

At that point, the commission would have the mandate to come up with a separate proposal on price caps that will again be sent to member states, who will have the right to amend it. While details are scant on the exact dates and options, many diplomats say that it’s not possible to have both types of price caps implemented at the same time. Any such price limit would be temporary, have to avoid endangering the security of supply and avert boosting demand for gas at a time when the EU is seeking to cut it.

Countries are still trying to coalesce around what a price cap would specifically look like. “According to my opinion, they mean that we have to prevent spikes, speculative high prices, at the exchanges,” German economy minister Robert Habeck told reporters in Luxembourg. “And that makes sense. Not to escalate the market’s susceptibility in a situation of tension. This is what I would want to discuss with my colleagues, how to prevent short term price spikes at the markets which lead to excess profits.”

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The EU’s executive arm told member states that under a possible narrower cap, member states would have to pay their gas-fired power plants a subsidy to cover the difference between the actual day-ahead price on the Dutch Title Transfer Facility and a target gas price for power generation. Contrary to the mechanism in place on the Iberian peninsula, the tool as analyzed by the commission does not include coal-fired power plants.

The subsidy would not only cut the price at which gas-fired power plants sell their electricity on the market but also lower the overall clearing price, reducing the revenues of utilities that generate electricity from other sources. Several member states have proposed that the subsidy should limit the price of gas to the equivalent of a TTF price of 100-120 euros per megawatt hour, the commission said. 

The costs of such a price cap would depend on the number of gas-powered power plants in individual member states, according to the EU’s executive arm. Nations that rely on that fuel for electricity production -- such as Germany, the Netherlands and Italy -- would face the highest costs of necessary subsidies. Countries importing power generated from gas would benefit from the system, with France set to be the biggest winner.

Read more: EU Gas Costs Could Fall 35% Under Spanish Price Cap Model

To address the differences, the EU would need to create a mechanism to redistribute the costs of the price cap in line with the benefits it brings about, a difficult step given the lack of reliable statistics and political challenges.

The commission also said it started working on a more structural and longer-term measure to decouple gas and power prices, adding that some of its elements could be brought forward. One of them would be remunerating renewables and other technologies based on their true production costs, under the so-called contracts for difference. In the new system, the main role of gas-fired power generation would be to counterbalance the effect of volatile renewable generation.

Such a targeted market-design changes can be proposed and implemented quickly, according to the EU’s executive arm. It would offer a more permanent solution to cut the link between power prices and the highly volatile gas markets and bring the benefits of renewables to consumers in line with their growing uptake needed to phase out Russian gas, the commission told member states.

--With assistance from Katharina Rosskopf.

(Updates with Sikela, Habeck quotes starting in fifth paragraph)

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