Spain calls for EU gas auctions, power price flexibility

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A general view of the Repsol YPF gas factory in Gijon, northern Spain, April 17, 2012. REUTERS/Eloy Alonso

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MADRID, Oct 26 (Reuters) - Spain has suggested that the European Union set up a system to jointly secure gas by auctioning contracts that give countries the option to buy the fuel when prices rise sharply or supply is threatened, a document seen by Reuters showed.

A global rebound in power demand this year has coincided with tight gas supply, sending gas and electricity prices soaring to record highs and ramping up pressure on governments to protect industry and consumers.

European Union countries failed to agree on a bloc-wide response to surging energy prices in an emergency meeting of government ministers on Tuesday, with some seeking a regulatory overhaul and others opposed. read more

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Spain's secretary of state for energy told reporters Madrid had presented more detailed proposals in a document.

"We need to keep working on much more ambitious measures," Sara Aagesen said, repeating calls to change how power prices are set, and saying a previous suggestion that the bloc buys gas jointly could be structured around option contracts.

"Our proposal today is purchase contracts, options to buy that could be done in a centralised way by the European Union," she said.

The document, seen by Reuters, proposed structuring a joint portfolio of these contracts through member states' gas system operators for use "when energy security is threatened, in (the) form of unaffordable gas prices or gas supply disruptions".

The EU should hold auctions to allocate these contracts to gas producers in third countries, providing a "gas buffer" as they roll out more renewables, it said.

Spain has also urged the EU to redesign its wholesale electricity pricing mechanism. It has the backing of France, but nine other countries oppose it. read more

The document suggested giving member states more control over power prices, taking into account their individual electricity systems, when circumstances required.

"In exceptional situations, member states have to be allowed to adapt the electricity price formation to their specific situations (mix, resources, level of interconnections)", it said.

Spain also fleshed out proposals to limit the role of financial speculators in the EU carbon market, including by taking lessons from similar systems in Switzerland and California that limit the number of excess emissions that can be purchased.

Additionally, it wants to exclude speculators from the market, limit how long permits are valid for, and introduce price targets that would give the EU the most scope to respond to rapid CO2 price swings.

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Additional reporting by Marine Strauss; editing by Steve Orlofsky and Bernadette Baum

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