European households will benefit from at least 376 billion euros ($375 billion) in government aid to stem whopping energy bills this winter, yet there’s a risk the smorgasbord of spending won’t bring enough relief.
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(Bloomberg) — European households will benefit from at least 376 billion euros ($375 billion) in government aid to stem whopping energy bills this winter, yet there’s a risk the smorgasbord of spending won’t bring enough relief.
The divergent solutions to Russia’s squeeze on natural gas supplies may end up being only temporary fixes since wholesale prices are set to remain far above historical norms. In August, the average price offered to domestic customers in the largest European countries was 67% higher than a year ago for electricity and 114% higher for gas, according to consultancy VaasaETT.
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“If you can’t control the wholesale price, the only thing left you can do is basically hand out money,” said Philip Lewis, chief executive officer of Finland-based VaasaETT. “The only thing consumers can really do is save energy.”
This winter will be grim across the continent. The UK, which already has the highest electricity costs in Europe, is set to see winter bills rocket by about 178%. The Netherlands, with the highest gas tariffs, also is seeing triple-figure increases.
The total bill for European governments is nearing 400 billion euros, based on fresh announcements and data from think-tank Bruegel. It’s likely to keep growing if European Union market interventions draw a windfall for governments. Here’s a breakdown:
Most households will see prices almost triple from last winter starting Oct. 1 after regulator Ofgem raised the limit on how much suppliers can charge per unit of power. Providers are privately owned, and about 30 poorly hedged companies went bust when wholesale prices soared above previous Ofgem caps. The government is paying £400 ($461) toward household bills and promises more support for the poorest, but the pressure is on new Prime Minister Liz Truss to do even more.
Households in the epicenter of Europe’s crisis saw August bills jump by an average 185% compared with a year earlier, according to consumer website Check24. The government is offering 95 billion euros in relief after tripling its package on Sept. 4. The measures include:
- A vow to cap and redistribute profits by energy companies
- Higher payments to families, the elderly and the unemployed
- Actions to curb the pace of price increases
The government is freezing and capping power price rises for homes, which primarily use electricity, and not gas, for heating.
- Regulated gas prices offered by Engie SA were frozen in October 2021, funded by state subsidies. Prices would have at least doubled otherwise, the energy regulator said
- A 4% cap was imposed in February on the increase in the annual regulated power price for households and small businesses by state-controlled Electricite de France SA. About three-fifths of French citizens are supplied by Engie and EDF
The typical household faces a stunning 91% jump in power prices and a 71% jump in gas bills in the year ending October, compared with the year before, the energy authority said. There’s no limit on bills from suppliers, dozens of whom have gone bust in recent months. Energy costs are the main issue in elections coming Sept. 25.
- Mario Draghi’s government imposed a ban until April on changes in contract conditions for some customers
The government is said to be working on a plan to generate as much as 16 billion euros to ease the burden on citizens. There’s no cap on household bills, about 90% of customers are on variable contracts and supply companies are private.
The standard one-year contract by Essent NV and Vattenfall AB soared to 5,000 euros in August from 2,000 euros last year, according to Dutch newspaper NRC. The government plan being developed would:
- Increase the minimum wage by 10%
- Reduce energy taxes
- Target subsidies toward lower-income households
- Impose a windfall tax on companies extracting fossil fuels
Europe’s biggest power exporter suffers from a severe shortage in the south, where most consumption is. Cable bottlenecks mean that the cheap electricity produced by hydro and wind parks in the north aren’t benefiting enough people.
- With an election looming this month, Prime Minister Magdalena Andersson pledged $6 billion in aid to those hardest hit by surging costs. That’s about triple the amount distributed last winter
- There is no price cap, and the government is emphasizing that the easiest way to save money is to consume less energy
- Sweden extended as much as 250 billion kronor ($23 billion) in credit guarantees to utilities
There’s no cap on the power price, but municipal governments tend to own most of the supply companies or have majority stakes. A household using natural gas for heating is set to pay about 38,000 kroner ($5,075) this winter — 70% more than last year, according to Danske Bank.
- Denmark started giving 6,000 kroner to low-income citizens reliant on natural gas, but the program is marred by accusations of ineptitude and may become a theme in upcoming elections
Spain and Portugal
A major wholesale market intervention in Spain and Portugal helped lower power prices by capping the gas cost that’s incorporated into the calculation. As a result, prices charged by suppliers, which are private companies, have stayed relatively flat compared with last year, with increases of just 1%-2% in Portugal.
- Spain lowered taxes on energy bills
- Portugal reduced the fuel tax and allowed small businesses to switch to regulated, cheaper gas tariffs. It also plans to lower VAT to 6% from 13% for a certain amount of electricity use.
Household prices are regulated, and almost all suppliers are state-controlled. Companies send proposals for tariff increases to the industry watchdog, which decides the upper limit for the following year. The 2023 amount should be known by mid-December. The regulator warned that bills may shoot up 180% unless the government acts, but premier Mateusz Morawiecki downplayed that estimate.
- The government approved 3,000 zloty ($629) per household to cushion the impact from more expensive coal, which is prevalent in home heating
- A windfall tax is being considered
The government started subsidizing bills in September 2021. This month, Greece will cover 94% of the increase for most households, with the poorest receiving almost 100% support. Those subsidies amount to 1.9 billion euros, compared with about 1.1 billion euros last month.
- So far, Greece is spending the equivalent of 3.7% of its economic output to shield households and businesses, the highest proportion of any EU country, according to Brussels-based Bruegel
State-owned Electric Ireland raised prices at least four times in a year in a country where there’s no cap on consumer bills. Ireland is exempt from EU targets on consumption because it gets three-quarters of its gas from the UK, but the country still encourages people to “Reduce Your Use.”
- Government support includes energy cost credits and a VAT reduction on bills to 9% from 13.5%
- Country is considering a windfall tax on energy companies and offering to help homeowners with insulation costs
The government is focusing on relieving consumers rather than intervening in markets. It cut checks topping 1,000 euros in June and is adding another 500-euro “climate bonus” in the third quarter. Households and companies will receive at least 6 billion euros this year and the next in benefits, with an added 22 billion euros of help through 2026 in the form of lower taxes.
- The government will cap power prices for households up to 80% of last year’s average consumption
- State-owned Verbund AG has been lobbying to decouple European power prices from the gas market
There’s no cap on energy bills, and some fixed contracts rocketed by as much as 650% from a year earlier for consumers signing in August. The government is considering a windfall tax on producers and zeroing in on taking full control of power plants of the largest utility, CEZ AS, which it already owns three-quarters of.
(Updates with further announcement from Portugal.)