Relentless Energy Surge Prompts EU Governments to Step In
(Bloomberg) -- A relentless rally in Europe’s energy prices is piling up pressure on governments, with Spain and Greece taking steps to cushion the blow for consumers.
Gas and power prices extended gains in Europe on Tuesday, reaching records in countries including Germany, France, Spain and the U.K. Spain moved to ease the cost of energy bills late Monday, and France said it was considering it, while Greece announced over the weekend a subsidy for all households.
Energy prices are skyrocketing as economies emerge from the pandemic -- boosting demand just as supplies are falling short. Gas and power prices are breaking records day after day even in the mild weather, and there’s no relief in sight. Italy’s Ecological Transition Minister Roberto Cingolani said on Monday that he expects power prices to increase by 40% in third quarter.
“Rising commodity prices are likely to hit consumer and industrial bills this winter,” said John Musk, analyst at RBC Europe Ltd. “However there may be some risk of political interference to prevent such a significant bill rise for consumers.”
The gains are fueling concerns about inflation. Consumer prices in Spain rose 3.3% in August, an increase that was largely driven by a surge in power prices, according to National Statistics Institute data. In Germany, inflation jumped 3.4% in August to the highest level since at least 2008. Swedish inflation also topped expectations on energy prices.
Energy bills are expected to go up by 20% for households across Europe, according to Citigroup Inc. That’s fueling expectations that more governments will step in. There’s a risk that higher prices derail the recovery.
France is considering easing the cost of rising energy bills for consumers, Finance Minister Bruno Le Maire said on LCI television Monday. It’s already handing out vouchers -- so-called energy checks -- worth about 150 euros ($177) per year to nearly 5.5 million poor households.
“It can be an efficient tool to protect the French against the rise in energy prices,” Le Maire said. “We’ll see in coming weeks whether we need to use this energy check.”
Gas prices have surged as Europe is running out of time to refill inventories before the start of the heating season in about a month. Storage sites are at their lowest level in more than a decade, while supplies from top suppliers Russia and Norway remain limited. Prices will still need to rise further if the continent is to attract cargoes of liquefied natural gas away from Asia.
LNG supply concerns mounted as Tropical Storm Nicholas made landfall in Texas, threatening to disrupt exports of the fuel. The Freeport LNG export terminal near Houston had all three production units shut as the storm moved inland.
Benchmark European gas futures traded in the Netherlands rose as much as 8.5% to a record 66.46 euros a megawatt-hour. In the U.K., futures for next month surged 8.7% to 166.64 pence a therm.
Rising gas prices are lifting the cost of producing electricity, with both German and French power prices for next year rising to records. Spanish day-ahead prices also reached an all-time high on Tuesday. While some utilities have turned to coal, supplies of the dirtiest of fossil fuels are also running short. Stockpiles at European ports are at their lowest level since 2016 for this time of year, data from Argus Media showed.
Power prices are also high because of policies to limit carbon emissions. Power plants that burn fossil fuels have to pay a price for every metric ton of carbon they emit into the atmosphere. That price has surged close to 90% this year.
There’s a risk the inflationary surge prompts a backlash against measures to curb emissions. But European Union climate chief Frans Timmermans said on Tuesday higher prices mustn’t undermine the bloc’s resolve.
“Instead of being paralyzed or slowing things down because of the price hike now in the energy sector we should speed things up in the transition to renewable energy so that affordable renewable energy becomes available for everyone,” Timmermans said.
German power for next year, a European benchmark, jumped as much as 3.1% to 102.50 euros a megawatt-hour. Prices exceeded the 100-euro mark for the first time on Monday. In France, the equivalent contract gained 2.6% to 106.30 euros.
Spain’s government will slap a windfall tax on utilities and cap consumers’ energy bills, Prime Minister Pedro Sanchez said late on Monday. It will extend an existing suspension on a 7% power generation tax through year-end and will lower another levy, known as the Special Electricity Tax, from the current 5.1% to 0.5%.
Greece said all households will receive a subsidy for the first 300 kilowatt hours consumed in the fourth quarter to cover most of the expected price hike in power bills. The country will also increase an allowance to help eligible households pay for heating oil ahead of the winter season, Greek Environment and Energy Minister Konstantinos Skrekas said Tuesday.
The U.K. says that the nation’s diverse gas supply sources will help keep demand balanced but that the nation’s exposure to price volatility underscores the need to build more renewables to reduce reliance on fossil fuels for power generation.
“Energy bills are skyrocketing as wholesale price increases get passed through to European consumers,” Ronald Smith, a senior analyst at BCS Global Markets, said in a note. “Politicians are only just beginning to feel voters’ ire, but the pressure to ‘do something!’ will only grow as heating season approaches.”
©2021 Bloomberg L.P.