Soaring energy prices heap pressure on EU politicians to help consumers

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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.

as and power prices extended gains in Europe yesterday, reaching records in countries including Ireland, Germany, France, Spain, and the UK. Spain moved to ease the cost of energy bills late Monday, and France said it was considering it, while Greece announced a subsidy for all households over the weekend.

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 he expects power prices to increase by 40pc in the third quarter.

“Rising commodity prices are likely to hit consumer and industrial bills this winter,” said John Musk, analyst at RBC Europe. “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 3.3pc in August, an increase that was largely driven by a surge in power prices, according to National Statistics Institute data. In Germany, inflation jumped 3.4pc 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 20pc for households across Europe, according to Citigroup. 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, said Finance Minister Bruno Le Maire. It’s already handing out vouchers – so-called energy checks – worth about €150 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,” Mr Le Maire said. “We’ll see in coming weeks whether we need to use this.”

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.

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 yesterday. 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 tonne of carbon they emit into the atmosphere. That price has surged close to 90pc 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 yesterday higher prices mustn’t undermine the bloc’s resolve.

“Instead of being paralysed 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,” he said.

Spain’s government will slap a windfall tax on utilities and cap consumers’ energy bills, Prime Minister Pedro Sanchez said late on Monday.