After decades of promoting a free market approach to the power and natural gas industries, European governments are regaining control of these vital functions. Record high energy prices are partly the result of Russia’s curb on gas supplies, prompting lawmakers to shed economic legitimacy and undo years of painstaking deregulation. It has been.
Britain, perhaps the most market-oriented of the European powers, is about to take the biggest step in this direction. Prime Minister Liz Truss is widely expected to announce a freeze on electricity and natural gas bills for consumers and some businesses on Thursday, two days after he took office.
An intervention that could cost the government as much as £150bn ($172bn) could prevent household energy bills from rising by about 80% next month and slow the country’s double-digit inflation rate. I have. Household energy price caps have been regulated in the UK in recent years, but there is a growing political consensus that they cannot cope with the current extreme market where natural gas and electricity prices are many times higher than the norm. increase.
At the same time, the European Union proposed capping Russian gas prices and negotiated with another large but friendly gas supplier, Norway. Since natural gas-fired power plants typically set electricity tariffs, Brussels taxed generators from non-gas sources, such as wind and nuclear power, with lower operating costs and their revenues to help troubled people and businesses. I would like to use it to help. energy cost.
European Union President Ursula von der Leyen said Wednesday: “We are currently facing astronomical electricity prices for homes and businesses and huge market volatility.
Russia has been a major supplier of energy to the African continent for decades, but many other governments have intervened in the energy sector since it recently began cutting supplies.
France tightly controls electricity prices for consumers despite rising wholesale costs. The German government has extended his €9 billion (about $9 billion) credit line to Uniper, one of the country’s largest gas suppliers. The German government also agreed to buy a large stake in the Düsseldorf-based company, and he announced a €65 billion aid package to help families stay warm during the looming winter.
Gas and electricity supply was once a predominant function of government across Europe, but its role was strengthened during the economic reconstruction after World War II. But as time goes on, government after government seeks to liberalize these industries, in the same way that telephone services and broadcasting do, in theory allowing companies to compete to provide the cheapest electricity and gas to their customers. It is now
In recent years, European regulators have pushed the price of natural gas through so-called hub deals like TTF in the Netherlands, rather than long-term, less transparent deals with suppliers like Russia’s Gazprom and Norway’s Equinor. I have asked you to decide.
This change helped consumers cut costs in recent years when gas was often cheap, but in times of war they were suddenly exposed to high energy prices and questioned whether the market could be trusted to produce the right results. I have a question.
Jonathan Stern, founder of the Oxford Energy Institute’s Gas Program, said the crisis would “largely dismantle” the “liberalized or competitive market that took 30 years to create.”
It’s not hard to see why the government is taking these steps. Europe is embroiled in a bitter battle with Russian President Vladimir V. Putin over Ukraine. Putin has turned the energy market into a proxy battlefield, choking natural gas supplies and driving up the price of natural gas fuel and the electricity it generates. recording level. Consumer advocates warn of dire hardships, “fuel poverty” and social unrest this winter, while business groups say a wave of bankruptcies could continue without major intervention. There is
Some analysts say the curbs and manipulations of Russian gas supplies have distorted existing markets so much that the government had no choice but to take action.
“They really succeeded in breaking the market, which is why this couldn’t continue,” said Henning Groustein, director of political risk firm Eurasia Group.
Energy industry executives have warned that actions in Russia’s markets could create volatility and force companies to hold up huge amounts of cash as collateral to conduct normal trading activities. As a result, an otherwise healthy company could be “in a completely impossible situation,” said Kristian Ruby, executive director of Eurelectric, a trade group representing utilities.
Ruby said a significant drop in electricity market volumes was a sign of dysfunction. “If the market is not liquid, the system will have problems,” he said.
Ruby said regulators should relax rules requiring cash or gold as collateral and governments should offer credit lines to energy providers to avoid disastrous consequences. The European Union signaled Wednesday it was ready to take the latter step.
Some experts, such as Mr. Stern of the Oxford Energy Institute, worry that if Europe goes too far on the path of interventionism, it will be difficult to get back on track. “There is a feeling that this is all temporary. Once we work things out with Putin, things will get back to normal, but that won’t be the case,” Stern said.
Analysts say consumer subsidies, once in place, could be difficult to end and could strain public finances.
Meanwhile, Eurasia Group’s Greustein said the package proposed by the European Union looked like an important step to stabilize the situation.
The trauma Europe experienced in its energy markets last year has fueled discussions about the changes needed to properly encourage and regulate cleaner technologies such as wind, solar and hydrogen. For example, it makes little sense for tariffs paid on wind and solar power to fluctuate with the price of natural gas.
But the question is whether Europe is heading towards a cumbersome state-owned system that could alienate investors.
“The challenge after this crisis is over is to introduce something better,” Greustein said.
Matina Stevis-Gridnev contributed to the report.