France Steps In to Contain Energy Prices Amid Backlash Fears
(Bloomberg) -- The French government will block any new increase in regulated natural gas tariffs for households and cut taxes on electricity to temper discontent as prices surge in the run-up to a presidential election.
“We’re going to introduce what I would call a tariff shield for gas and electricity,” Prime Minister Jean Castex said on the TF1 television station Thursday evening, days after announcing 580 million euros ($672 million) in special subsidies to help poor households with soaring energy bills.
Any new increase in gas tariffs, following the 12.6% hike starting Friday, will be blocked until prices start to abate in spring, shielding more than 5 million households that are on floating-rate contracts, Castex said. The French government will also cut taxes on power prices, capping the planned increase in residential electricity tariffs at 4% in February 2022, he said. It’s also looking at ways to help gas suppliers through the cost freeze.
With winter fast approaching, gas and power prices are breaking records as European economies rebound from the pandemic. Governments across the region are using various measures to help households cope with rising electricity bills. Greece promised subsidies and suggested creating a carbon-market fund, while Spain wants to slap a windfall tax on utilities.
For French President Emmanuel Macron, the timing of the crisis couldn’t be worse. Campaigning to replace him has started in earnest, and he has a careful balancing act to perform. He needs to reach out to those who took part in mass protests against social inequalities during his second year in office, while also courting right-wing voters worried about ballooning state expenditures.
Finance Minister Bruno Le Maire has ruled out reducing energy taxes, which would have long-lasting effects, in favor of temporary measures to help the most vulnerable.
Though the government is betting the price spike is only temporary, it is also exploring ways to help energy-dependent companies and is subsidizing renovations that make homes more energy-efficient.
France will help gas suppliers regarding the cash impact of the tariff cap, Castex said, without elaborating. He said experts are predicting that gas prices will fall back “strongly” by spring, and announced that the forecast decline won’t be fully passed on to consumers to compensate for the freeze in regulated tariffs.
That will reassure Engie SA investors “regarding the value neutrality of the intervention which is just about shaving the winter spike in bills,” JPMorgan Chase & Co. analysts wrote in a note. For state-controlled Electricite de France SA, the government will partly compensate the increase in power bills with tax offsets, which is “good news for EDF investors,” the bank said.
The government won’t tax EDF’s windfall profits stemming from rising power prices, Industry Minister Agnes Pannier-Runacher said Friday on RMC radio. These profits “will be reinvested,” maybe in future nuclear reactors or in renewable energy, the minister said. “We are all owners of EDF. When EDF makes profits, it’s beneficial for all the French,” as it’s investing for the country’s “energy sovereignty.”
Shares of Engie, France’s biggest gas supplier, rose as much as 1.9% and was trading up 1.4% at 11:21 a.m. Paris time. EDF was 4.3% higher.
Engie said in a statement it will “engage constructively with the regulator to find solutions” that will enable it “to support customers alongside focusing on minimizing any impact on financial performance.”
©2021 Bloomberg L.P.