22APR

IEEFA: gas still sets EU power at EUR 120-150

2 min read

14:48UTC

Institute analysis published 20 April shows gas at 18-20% of generation still clears day-ahead prices on low-wind sessions.

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Key takeaway

Gas at 18-20% of generation still prices the grid's marginal hour, so Hormuz volatility clears through to bills.

IEEFA (Institute for Energy Economics and Financial Analysis) published analysis on 20 April 2026 finding that gas, though only 18-20% of EU electricity generation, still sets day-ahead clearing prices at EUR 120-150/MWh across Italy and Germany on low-wind sessions via the marginal merit-order design . The analysis concluded that diversifying gas suppliers has not reduced EU exposure to gas price volatility, and that the Hormuz disruption has transmitted directly to household electricity bills even in high-renewables grids.

The finding is the arithmetic backing the political economy behind AccelerateEU . Brussels chose consumer-relief tools because gas price shocks reach households through the electricity bill regardless of the renewable build-out, and the merit-order mechanism gives policymakers no structural buffer to lean on. At TTF EUR 42.39/MWh, a low-wind hour clears at three to four times the flat-curve renewable price; the pass-through is automatic and the hedging venue is either the gas hub itself or a capacity market that does not exist for most of these hours.

For traders the IEEFA reading collapses the distinction between the gas story and the power story. A Hormuz-driven TTF range becomes a power-price range on any low-wind session, which is why the Bruegel critique of consumer-relief packages centred on storage rather than supply: without a gas reserve, the merit order has nothing to clip against on the marginal hour. The diversification thesis that drove the 2022-2025 supplier rotation has not closed the structural vulnerability at the clearing step .

Deep Analysis

In plain English

Even though solar and wind now produce most of Europe's electricity on many days, the price everyone pays is still often set by gas power stations. On days with little wind, a gas plant is the last one switched on to meet demand, and under European electricity market rules, everyone else is paid the same high price that the gas plant needs. This is why a gas supply problem in the Persian Gulf raises electricity bills even in countries with lots of renewables.

Deep Analysis

Root Causes

EU electricity market design locks in gas-as-marginal-setter through two structural decisions that predate the 2022 energy crisis and have not been legislated away. First, the merit-order auction clears all generation at the price of the most expensive unit called, meaning a single gas peaker running at TTF-linked cost sets the clearing price for every renewable MW in the stack on that hour.

Second, the absence of capacity markets with mandatory day-ahead price caps in Italy and Germany means no regulatory instrument can intercept the pass-through between TTF and the day-ahead auction result.

The EU Electricity Market Reform adopted in 2023 introduced two-way contracts-for-difference for new renewables, but existing generation assets operate under legacy contracts. Approximately 65% of EU renewable capacity was commissioned before 2022 and receives no two-way CfD protection, leaving the majority of EU renewable output exposed to market-price variation that ultimately reflects gas volatility on the marginal hour.

What could happen next?

Consequence
Diversifying gas suppliers from Russia to Qatar and the US between 2022 and 2026 has not reduced the gas-to-power price transmission channel; it has merely changed which geopolitical risk sets the marginal clearing price.
Risk
Without two-way CfD contracts covering the approximately 65% of EU renewable capacity commissioned before 2022, a sustained EUR 60-80/MWh TTF rise would translate directly to EUR 180-250/MWh day-ahead clearing on low-wind sessions, the range that triggered demand-destruction events in autumn 2022.

Source Landscape

This story draws on neutral-leaning sources

At TTF EUR 42.39/MWh, a gas peaker running at 50% thermal efficiency produces power at a variable cost of roughly EUR 84/MWh before CO2 costs. Adding EU ETS carbon at approximately EUR 65/tonne and a heat rate of 1.8 tonnes CO2/MWh brings the total variable cost to around EUR 117/MWh, closely matching the IEEFA EUR 120-150/MWh clearing range on low-wind sessions.

For Italian and German households on spot-linked tariffs, a day-ahead clearing of EUR 130/MWh versus a renewable baseload of EUR 35/MWh implies an approximately EUR 95/MWh opportunity cost that flows directly to the bills of consumers without long-term fixed-rate contracts. This pass-through mechanism is why AccelerateEU included a temporary electricity disconnection ban: the bill shock at EUR 120-150 clearing is acute enough to trigger mass default.

Sources:IEEFA

Mentions:IEEFA →Italy →Germany →Persian Gulf →AccelerateEU →Bruegel →TTF →

First Reported In

Update #4 · AccelerateEU skips gas; three removals land

IEEFA· 22 Apr 2026

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Different Perspectives

Hungary and Slovakia

Named in ACER's derogation list as the two EU member states most dependent on TurkStream, Hungary and Slovakia face a binary regulatory path: grant derogations exempt them from REMIT standards at the Russian gas entry point from 5 August, or compliance requires a third-country cooperative step neither Russia nor Turkey has treaty-based reason to provide.

Asian LNG buyers (China, Japan, South Korea)

With JKM sitting USD 2.90-3.30/MMBtu above TTF and European buyers below the cargo-diversion breakeven by USD 0.95-1.25/MMBtu, flexible Atlantic LNG cargoes continue routing east. Asian buyers are the primary beneficiaries of any reopening dividend until the JKM-TTF spread compresses below the diversion threshold.

Iran / IRGC

Iran converted Hormuz operational control into a codified permit system on 7 May, formalising the wartime gain through a named institution, the Persian Gulf Strait Authority, and fee-charging arrangements. TTF's non-reaction to both Project Freedom's launch and its 48-hour collapse confirms markets treat Iran's Hormuz position as structural, not temporary.

European Commission (DG Energy)

The Commission's AccelerateEU decision on 22 April, confirmed at the Cyprus summit, chose untargeted consumer relief over any storage injection mechanism. At 0.248 pp/day, that choice is producing the outcome Bruegel's model did not stress-test: the EUR 26bn bill may buy 73% rather than 80% without a pace instrument.

ACER

ACER's 6 May derogation opinions formalise the structural limit of EU network code enforcement: where Russian and Turkish TSOs are counterparties, EU standards bind only to the EU border, and Hungary and Slovakia bear the derogation exposure. The Commission, not ACER, holds the final decision on whether to grant the derogations ahead of 5 August.

Equinor

Equinor reported USD 9.77bn adjusted operating income in Q1 2026 and confirmed a second USD 375m share buyback, but passed its most natural disclosure opportunity without issuing any Hammerfest LNG return-date guidance. The company's institutional pattern, silence until restart, leaves market positions priced against a July return the empirical record does not support.