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Energy Bills Crisis in Europe

Article Issue #42
Energy Bills Crisis in Europe.

Energy prices soaring

27 Sep, 2022 | BANKSY

Spiralling inflation and war has sparked a cost-of-living crisis across Europe, and governments are stepping in to try to shield households and businesses from the surge in energy prices. For many families, it feels like paycheques are evaporating as inflation drives up the cost of food, fuel, rents and utility bills keep soaring. Inflation in the eurozone jumped to a new all-time high of 9.1 per cent in August, fuelled by rising in energy costs. There’s also no sign of the energy crisis improving any time soon, as Russia said this month it would not fully resume its gas supplies to Europe until the West lifts the sanctions it imposed on Moscow over its invasion of Ukraine. Belgian prime minister Alexander De Croo has warned Europe could face up to 10 difficult winters as a result of the standoff. European Union member states are largely responsible for their national energy policies, and EU rules allow them to take emergency measures to protect consumers from rising costs. Here’s a look at what governments across the continent are doing to help.

Britain’s government is capping wholesale energy bills for businesses this winter as part of a broad package of measures to protect people and companies from soaring energy prices. Prime minister Liz Truss said the cap will apply for six months from October 1 and will ensure businesses "are able to get through the winter". She added that shops and pubs will benefit from financial help on their energy bills beyond the initial six-month period. A similar cap on household energy bills was unveiled earlier this month. The average household “will pay no more than £2,500 per year for each of the next two years,” Truss said, adding that would amount to annual savings of around £1,000 based on current energy prices. This comes in addition to a £400 energy bill rebate pledged earlier this year for every household, which will be either paid directly to accounts that have an automatic payment set up towards their energy provider, or which could be separately claimed by the families. Households that are already struggling to make ends meet and have already received government benefits will also get a one-off "cost of living" payment of £650 on top of the £400 discount, and pensioners will receive an extra payment of £300 this winter. People with disabilities are also set to receive a payment of £150 to cover the increased cost of living.

Italy approved in early August a new aid package worth around €17 billion to help shield firms and families from surging energy costs and rising consumer prices. It comes on top of some €35 billion budgeted since January to fight the cost of living crisis. A draft seen by Reuters showed the government would extend a €200 bonus paid in July to low and middle-income Italians who did not previously receive it. Italy has also announced its intention to tax companies profiting from higher energy prices and is promoting a cap on gas prices at a European level to help contain price spikes.

Like Italy, Spain has decided to tax those energy companies profiting from the increase in energy prices and use the money raised to help its citizens pay the bills. Madrid has already cut value-added tax (VAT) on energy bills from 21 per cent to 10 per cent, while also cutting an existing tax on electricity from 7 per cent down to 0.5 per cent. Like Portugal, Spain currently enforces a one-year long cap on gas prices, agreed by the European Commission, which ensures they remain lower than an average of €50 per megawatt-hour.

France is also offering a one-off payment to its citizens to help them face hard times, though at just €100 this is considerably lower than in the UK and Italy. But France has stepped up its game at the source, moving to fully nationalise energy provider EDF and forcing it to limit electricity wholesale price rises. The government now says it will cap power and gas price increases for households at 15 per cent in 2023. It says the average monthly household energy bill will cost an extra €20-25 as a result, compared to an extra €180-200 without such a cap. The country’s domestic tax on final electricity consumption (TICFE) has also been curbed from €22.50 per megawatt hour to only €1 per megawatt hour for households, and €0.50 for businesses.

Germany, which has struggled to curb its heavy dependency on Russian gas, has pledged to lower the value-added tax on natural gas from 19 per cent to 7 per cent until the end of March 2024. Germany also approved two relief packages for a total of €30 billion to help its citizens with rising energy prices this year. The German government will offer a one-off energy price flat rate of €300 to all taxpayers, transferred to them via their employer's payslip. Families receiving child support will get an extra €100 per child, while people on benefits will receive a €200 one-off payment. Those on housing assistance will get a €270-worth top-up for people on housing assistance. The country is also offering subsidised public transport tickets. However, German households will have to pay almost €500 more a year for gas due to a new levy - to be imposed from October - helping utilities cover the cost of replacing Russian supplies.

As energy market prices increase around the world, Norwegians will only pay a set amount decided by the government last year. According to a scheme introduced by the government in 2021, Norwegians only pay bills in full when prices are under 70 crowns (€7) per kWh. When energy bills pass that threshold, the government covers 80 per cent of the total. Despite this, Norwegians are apparently still struggling to pay their bills, and the government is mulling other options to help out households this winter. Finland Finland’s government said on September 4 that it plans to offer up to €10 billion of liquidity guarantees to the energy sector to help prevent a financial crisis. "The government's programme is a last-resort financing option for companies that would otherwise be threatened with insolvency," Finland's prime minister Sanna Marin told a news conference.