UK weighs in on huge package of support as Europe battles energy crisis

Manuela Schwesig, Premier of the State of Mecklenburg-Western Pomerania, and Markus Soeder, Premier of the State of Bavaria, visit a pipeline transfer station of the Baltic Sea Pipeline Link near Lubmin, Germany , August 30, 2022. REUTERS / Lisi Niesner

HELSINKI/ZURICH, Sept 6 (Reuters) – – Britain’s new prime minister was working on what appears to be Europe’s biggest energy crisis support package as countries scramble to protect households and businesses against soaring bills and support struggling suppliers.

Liz Truss, who took over from Boris Johnson on Tuesday, plans to freeze household energy bills at current levels for this winter and next, paid for by government-backed loans to suppliers, the BBC reported, adding that the program could cost 100-130 billion pounds ($116-151 billion).

The government is also working on helping businesses, but this is likely to be more complex and will be reviewed more frequently, the BBC said.

European governments are imposing multibillion-euro packages to prevent public services from collapsing and protect households from soaring energy costs triggered primarily by the fallout from Russia’s invasion of Ukraine.

Benchmark gas prices in Europe have jumped around 340% in a year and jumped as much as 35% on Monday after Russian state-controlled Gazprom (GAZP.MM) said it would extend the closure of the main Nord Stream 1 gas pipeline indefinitely. Read more

Europe has accused Russia of militarizing energy supplies in retaliation for Western sanctions imposed on Moscow following its invasion of Ukraine. Russia blames these sanctions for causing gas supply problems, which it attributes to pipeline failures.

Germany said on Sunday it would spend at least 65 billion euros to protect customers and businesses from soaring inflation, triggered mainly by rising energy costs. Read more

Several countries are also providing billions in support to energy distributors exposed to wild price swings that force them to cough up huge guarantees for supplies.

Norwegian energy company Equinor estimated that these guarantee payments, known as margin calls, amounted to at least 1.5 trillion euros ($1.5 trillion) in Europe, excluding Britain. Read more

RECESSION FEARS

Finnish company Fortum (FORTUM.HE) announced on Tuesday that it had signed a bridge financing agreement with the government investment company Solidium worth 2.35 billion euros to cover its collateral needs. Read more

A Finnish government official told Reuters the support comes on top of the €10 billion in liquidity guarantees announced by Helsinki on Sunday for power companies. Read more

“The ongoing energy crisis in Europe is caused by Russia’s decision to use energy as a weapon, and it also seriously affects Fortum and other Nordic power producers,” Fortum’s chief executive said. , Markus Rauramo, in a press release.

Swiss utility Axpo (AXPOH.UL) said it applied for and was granted a credit line of up to 4 billion Swiss francs ($4.1 billion) from the government to help its finances. Read more

The Swiss government has provided a 10 billion franc backstop for power companies, but has decided to allocate the funds to Axpo even though the legislation is still before parliament.

The Financial Times also reported that Britain’s largest energy supplier, Centrica (CNA.L), was in talks with banks to secure billions of pounds of additional credit. Centrica declined to comment. Read more

Many European electricity distributors have already collapsed and some large producers could be at risk, hit by caps that limit the price increases they can pass on to consumers, or caught off guard by hedging bets.

Utilities often sell electricity in advance to guarantee a certain price, but must maintain a “minimum margin” deposit in the event of a default before supplying the electricity. This has increased with soaring energy prices, leaving companies struggling to find cash.

Soaring prices are forcing energy-intensive industries to cut production, increasing the risks of plunging European economies into recession.

Aluminum Dunkerque, France’s largest aluminum smelter, plans to cut production by a fifth in response to rising electricity prices, a source familiar with the matter told Reuters on Tuesday. The company was not immediately available for comment.

The benchmark Dutch gas contract for the previous month was down 9.6% at 222 euros per megawatt hour at 12:15 GMT, but still up around 5% from Friday’s close.

($1 = 1.0085 euros)

Additional reporting by William James, Susanna Twidale, Nora Buli, Caroline Pailliez and Gus Trompiz; Written by Mark Potter; Editing by Jan Harvey and Carmel Crimmins

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