Originally introduced in the energy crisis, EU co-legislators have made (voluntary) joint purchasing for natural gas a permanent instrument. The concept may be extended to biomethane, captured methane, hydrogen as well as strategic raw materials. Our report finds that the precise role and optimal design of a common purchasing mechanism will vary by commodity. 

In response to the energy crisis 2021/22 and as part of a package of measures following the REPowerEU communication, the EU introduced a demand aggregation and joint purchasing mechanism (DA/JPM) for natural gas, called AggregateEU. AggregateEU consolidates demand from European users and tenders this out to non-Russian international suppliers of natural gas, with the first tender organised in April 2023. 

As part of the EU hydrogen and gas decarbonisation package in summer 2024 EU co-legislators have decided that DA/JPM for natural gas will become a permanent voluntary tool. The new legal basis for natural gas allows for extending DA/JPM for captured methane and biomethane. In addition, EU co-legislators have empowered the European Commission to introduce DA/JPM for renewable and low-carbon hydrogen and have requested the introduction of DA/JPM for strategic raw materials such as lithium, copper and cobalt as part of the Critical Raw Materials Act. 

The European Commission assigned Frontier, with law-firm Freshfields as subcontractor, to review the performance of AggregateEU and the role of DA/JPM going forwards.  

Our key findings on the performance on AggregateEU for natural gas are that it may have contributed to establishing new commercial relationships. However, the extent to which this “counterparty discovery” may have been realised by the market itself in the absence of AggregateEU, and the extent to which matches with new suppliers resulted in the actual conclusion of gas supply contracts, is unclear. Going forwards, given the decision to maintain common gas purchasing, we suggest to keep the product focus and frequency of tendering under review, to maximise effectiveness while limiting potential negative consequences. This may involve a restriction or reduction of the short-term tenders, under normal market conditions. 

Regarding the potential application of DA/JPM to other commodities, the decision whether to intervene or not needs to be carefully balanced. Policy interventions can negatively affect welfare if not well-targeted or designed, and can result in implementation and administrative costs. These negative effects need to be weighed up against the positive effects resulting from addressing market failures and barriers identified. 

Taking the EU co-legislators’ desire to intervene as given, we conclude that the most appropriate form of DA/JPM depends on the product and market characteristics and can therefore vary by commodity: 

As an example, the emerging market for low-carbon and renewable hydrogen faces a “chicken and egg” problem. Effective infrastructure planning and regulation play a key role in addressing this coordination issue. DA/JPM can also play a complementary role through providing transparency regarding supply, demand and potentially infrastructure development. The addition of “matching” functionalities to such a transparency platform could help reduce search costs for counterparties, in particular or smaller players. Given the hydrogen market is expected to remain regional and intra-EU initially, more interventionist approaches may be less appropriate.  

By contrast, the cobalt market is characterised by supply concentration and high projected demand growth. As such, a demand aggregation platform, potentially with binding bids, could serve to increase EU buyer power to some extent.  

Click here to read the full report: Design, development and implementation of joint purchasing options under EU energy platform

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