Dark house: why Europe faces high energy bills in winter

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LONDON – European households face much higher winter energy bills due to a global spike in wholesale electricity and gas prices and consumer groups have warned the region’s most vulnerable could be affected by fuel poverty.

WHY THE HIGH PRICES?

Energy companies pay a wholesale price to buy gas and electricity, which they then resell to consumers. As in any market, it can go up or down, depending on supply and demand.

Prices typically rise in response to increased demand for heat and people turning on lights earlier in the winter, while those in the summer are typically lower.

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But prices have skyrocketed due to low gas storage stocks, high carbon prices in the European Union, low deliveries of liquefied natural gas tankers due to higher demand from Asia. , a less important gas supply from Russia than usual, low production of renewable energy and gas and nuclear maintenance outages.

European gas benchmark prices at TTF’s Dutch hub have risen by more than 250% since January, while German and French benchmark electricity contracts have both doubled.

HOW LONG CAN THIS LAST?

The winter heating season in Europe typically begins in October and wholesale prices are not expected to drop significantly for the remainder of this year.

Norwegian company Equinor expects the drivers of current gas prices to remain high through the fall and winter, said CFO Ulrica Fearn, adding that Europe’s second-largest gas supplier after Russian Gazprom would increase gas production where it could to meet demand.

A quick start of the Nord Stream 2 gas pipeline between Russia and Germany could help balance high gas prices in Europe, a spokesperson for the Russian Kremlin said.

Gazprom has completed construction, but will not start pumping gas to Europe until approval from a German regulator and commercial deliveries are not expected in the near term.

WHY IS THE RETAIL PRICE INCREASING?

Many energy providers have announced retail price increases in recent months, passing on a higher wholesale cost to consumers.

Wholesale costs can be a big part of an invoice. In Great Britain, for example, on a mixed bill (electricity and gas), the wholesale cost can be 40% of the total.

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Thus, when wholesale market prices increase significantly, suppliers may increase consumer retail prices.

Suppliers can purchase energy from the wholesale market on the day of delivery, one day in advance, and up to months or seasons in advance.

They should try to predict when the price will be cheaper and buy the right amount to meet the needs of their customers.

If suppliers don’t buy enough energy, they might have to buy more at a price that could be higher, depending on market movements. This year, prices have continued to climb all summer.

CAN SOMEONE INTERVENE?

Some governments have announced measures to try to ease the winter burden on households.

“EU law allows member states to apply safeguards, such as public interventions in pricing for the supply of electricity to energy-poor or vulnerable domestic customers, under certain conditions,” said one spokesperson for the European Commission.

Spain’s government on Tuesday adopted emergency measures to cut energy bills by redirecting billions of euros in extraordinary profits from energy companies to consumers and capping increases in gas prices.

The government plans to funnel some 2.6 billion euros from businesses to consumers over the next six months.

Greece will offer subsidies to the majority of its households by the end of the year to make energy costs more affordable, a government official said on Tuesday.

Italy plans to review the way electricity bills are calculated with the aim of cutting prices, two sources said on Tuesday, with retail electricity prices set to rise 40% in the next quarter.

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In Germany, energy prices are being debated ahead of the September 26 elections. Britain introduced price caps on the most widely used energy tariffs in 2019 to end what former Prime Minister Theresa May called “scam” pricing.

However, UK energy regulator Ofgem raised the cap on most used tariffs from 12% to 13% from October, after raising it in April due to high wholesale costs.

Ofgem says that without this increase in the cap, companies would not be able to continue providing energy to their customers and meeting their broader obligations.

WHAT CAN CONSUMERS DO?

In countries with many energy suppliers, consumers are encouraged to change supplier or at a cheaper rate.

Britain has around 50 suppliers due to a deregulated market, but smaller ones have less capital to cover their wholesale electricity purchases against soaring prices and some have gone bankrupt in recent months.

Regulators such as Ofgem are urging consumers to contact their energy supplier if they are having trouble paying their bills to explain when and how much can be paid.

Energy efficiency measures, such as better insulation, energy efficient lighting, and smart meters are also recommended, but may require upfront costs.

It is much easier to reduce energy consumption during the summer months.

(Reporting by Nina Chestney; additional reporting by Susanna Twidale in London, Stephen Jewkes in Milan, Vera Eckert in Frankfurt, Kate Abnett in Brussels; Editing by Veronica Brown and Alexander Smith)

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