Soaring utility prices alarm Europe, raise fears for winter
MADRID — Wholesale prices for gas and electricity are surging across Europe, raising the prospect of increases in already-high utility bills and further pain for people who have taken a financial hit from the coronavirus pandemic.
Governments are scrambling to find ways to limit costs to consumers as scant natural gas reserves present yet another potential problem, exposing the continent to even more price spikes and possible shortages if it’s a cold winter.
In the U.K., many people will see their gas and electricity bills rise next month after the nation’s energy regulator approved a 12% price increase for those without contracts that lock in rates. Officials in Italy have warned that prices will increase 40% for the quarter that will be billed in October.
And in Germany, retail electricity prices have already hit a record 30.4 cents per kilowatt hour, up 5.7% from a year ago, according to comparison site Verivox. That amounts to about $1,252 a year for a typical household. And prices could go higher still since it can take months for wholesale prices to be reflected in residential bills.
There are multiple causes for the price increases, energy analysts say, including tight supplies of natural gas used to generate electricity, higher costs for permits to emit carbon dioxide as part of Europe’s fight against climate change, and less supply from wind in some cases.
To mitigate the increases, Spain’s Socialist-led government has scrapped a 7% tax on power generation that was being passed on to consumers, cut a separate energy tariff on consumers to 0.5% from 5.1%, and imposed a windfall tax on utilities. Italy is using money from the emissions permits to lower bills. France is sending a 100-euro “energy check” to those already getting support paying their utility bill.
Analysts at S&P Global Platts say electricity prices have risen due to strong demand from places like data centers and electric cars, but above all because of the rise in the price of natural gas used in generating plants.
The tight gas market could bite even more sharply if there’s an unusually cold winter. That’s because European distributors did not refill reserves depleted during last winter as they typically have done in summer months.
Could Europe run out of gas? “The short answer is, yes, this is a real risk,” said James Huckstepp, manager for EMEA gas analytics at S&P Global Platts. “Storage stocks are at record lows and there isn’t currently any spare supply capacity that is exportable anywhere in the world.” The longer answer, he said, is that it’s “hard to predict how it will play out,” given that Europe has never run out of gas in two decades.
Even if the most dire scenarios do not come true, energy spending will hurt the poorest households. Energy poverty — the share of people who say they can’t afford to keep their homes warm — is 30% in Bulgaria and 18% in Greece.