Shield, taxes, checks: this is how Europe is fighting the energy price shock

The cost of power generation exploded within a few months. In Paris, Madrid and Rome, the governments are taking sometimes drastic measures to cushion the price shock for consumers. The Germans, on the other hand, will have to wait for comparable help.

An announcement could hardly be clearer: “That will not happen,” said French Prime Minister Jean Castex on the evening news about the expected further increase in the price of gas for French private households. Following the recent price hike by the dominant supplier, Engie, the French are already paying over 50 percent more than they were at the beginning of this year. But now it’s over for now, says Castex. There will be no further increases in the beginning of the heating season on the heavily regulated gas market in France. “I have the power to do it,” said Castex at his appearance a few days ago.

Even if with less prominent appearances than the French head of government, more and more European governments are now intervening in the energy market. Above all, the acute shortage of natural gas, but also the sharply rising prices for coal, oil and electricity wholesale are alarming those responsible. In the UK, several gas providers have since had to give up because they were unable to pass the rising purchase prices on to end customers due to long-term customer contracts. Some energy-intensive factories have stopped operating or shut down. In Germany, the Bergkamen coal-fired power station has been shut down since last weekend due to a lack of supplies.

Without government intervention, the crisis will be reflected in horrific price increases for electricity, gas and oil for consumers by winter at the latest. The governments are trying to prevent this by various means.

In France, the government wants to cap the price of electricity for consumers in addition to the gas price with its “price protection shield”. The regulation should apply until next spring. Then, it is hoped, prices will fall again. The government emphasizes that it will ensure that any price cuts are passed on to consumers. Because of the expected cost increases in the coming months, the energy suppliers are to receive state support. An increase in the electricity tax planned for next year is to be suspended. In addition, Castex announced that the government is providing more than half a billion euros to directly support poor households with energy bills with energy checks.

Spain has also adopted a package of measures to protect consumers from the energy price shock. Prime Minister Pedro S├ínchez claims that consumers should not pay higher electricity prices than in 2018. For this he wants to collect around three billion euros from energy suppliers with a special tax. Numbers are particularly intended for those who do not use gas to generate electricity, but who profit from the overall rise in electricity prices and, in the view of the government, reap “excessive profits”. The billions are to be passed on to private customers primarily in the form of tax cuts. However, the energy industry is going by storm against the plan. The operators of the Spanish nuclear power plants warn that they will have to cease operations completely, which would lead to a collapse of the electricity market.

Italy wants to cushion the price shock for both private households and small businesses. This is to be done through direct payments, for which three billion euros have been made available, and through the reduction in VAT on gas.

So far, the government in Great Britain has reacted comparatively coolly. Prime Minister Boris Johnson agreed that this problem would last for several months. But “market forces” would take care of it in the end, “and we will do everything we can to help,” said Johnson. The wholesale price of natural gas in Great Britain has more than tripled since the beginning of the year. However, the energy suppliers cannot pass these costs on to consumers because of a statutory maximum price. The government has so far publicly refused to help companies with taxpayers’ money. Further bankruptcies are foreseeable. Economics minister Kwasi Kwarteng assured, however, after a crisis meeting with energy companies: “The lights will absolutely not go out or people will be unable to heat their houses.”

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It’s been quiet in Germany so far. Many large electricity and gas suppliers in this country have secured themselves against short-term shocks with long-term supply contracts and financial instruments, and consumer prices are usually fixed on an annual or biennial basis. In the medium term, however, this will not change the fact that companies will pass on the rising costs. The first energy suppliers have already increased their prices.

However, Germans already pay the most for their electricity across Europe. A good half of the German electricity price is accounted for by taxes, fees and levies, a quarter by network charges and just under a quarter by electricity generation and sales. On the one hand, this means that cost increases for gas and coal, for example, have to have a relatively minor impact on the price of end customers. And on the other hand, the government has significant options to ease the burden on consumers. The consensus among the parties represented in the Bundestag is that the green electricity levy, which makes up around 20 percent of the electricity price, should be abolished or at least fundamentally reformed. But Germans can hardly hope for relief as quickly as in other European countries. In view of the negotiations that have just begun on the formation of the new federal government, the implementation of such plans is hardly possible this year.