Little leeway to ease consumer pain as European power prices soar

PARIS/WARSAW/LONDON: Households across Europe should brace for higher energy bills this year as governments have had little success in limiting rises in the face of soaring wholesale and environmental costs.

This has already spelt trouble for some. Rising energy prices and plans to hike fuel taxes were a catalyst for the “yellow vest” protests that have swept France since November, prompting the government to reverse several tax initiatives.

Other governments across the continent have also felt the heat of public frustration over rising bills but have struggled to find a formula to keep a lid on charges.

Britain imposed a household energy price cap in January but the regulator has allowed a 10 percent price hike from April. Poland has to amend its plans for a cap to ensure they do not violate European Union rules on state aid for utilities.

Failure to address the issue could help fuel popular anger and protest votes in European Union parliamentary elections in May or looming national polls, including Poland’s elections.

“There is a risk of protests like the yellow vests spreading so long as people feel that they are excluded from discussions around energy issues reserved for technocrats,” said Francois Gemenne at SciencesPo University in Paris, adding that the votes would highlight “questions around social justice.”

Since the start of 2019, power prices have risen 8 percent in Spain and Italy, while in France regulated electricity tariffs for more than 28 million customers of EDF will rise 5.9 percent on June 1, the biggest increase since 2010.

In Belgium, regulator CREG sparked a public outcry by proposing a 21 percent rise in the electricity tariffs that are paid by low-income households.

Utilities say they have to charge more because wholesale costs are rising. The European benchmark power price German Cal’20 is trading 40 percent higher than a year ago at 49.25 euros per megawatt hour (MWh), even after falling 10 percent in 2019.

The utilities also say they face extra expenses from the drive to cut down carbon emissions and shift to renewable power.

Benchmark European carbon prices, which power generators buy to offset carbon emissions, almost trebled in 2018 to average about 15.95 euros ($18.13) a tonne and are now trading at 19.13 euros. Analysts expect the price to average above 20 euros for the next few years.

Evolution of European Baseload Power, Coal and Carbon Contracts tmsnrt.rs/2V7yZLS

NO MAGIC FORMULA

In Britain, Prime Minister Theresa May called energy tariffs a “rip off” and a cap on bills was introduced on Jan. 1.

But regulator Ofgem, which reviews the cap each six months, said it had to let utilities charge more due to rising wholesale prices. It approved a more than 10 percent hike from April 1.

All six of the big suppliers — Centrica’s British Gas, Iberdrola’s Scottish Power, Innogy’s npower, EDF’s EDF Energy and E.ON’s E.ON UK and SSE — announced price rises of about 10 percent.

“Unfortunately, there is no magic formula to control rising wholesale costs,” said Stephen Forbes, chief commercial officer of SSE Energy Services.

European Electricity prices for household consumers in the first half of 2018

In Poland, the government adopted legislation in December designed to prevent an expected rise in power prices for households and big consumers at the start of 2019, ahead of a general election in the autumn.

The bill aimed to cap power prices at mid-2018 levels at a cost of about 9 billion zlotys ($2.36 billion), covering costs of compensating utilities and for cutting taxes and fees. But the legislation needs amending to meet EU rules on state aid.

Entrepreneurship and Technology Minister Jadwiga Emilewicz said the government acted after energy prices rose 300 percent in 2018, but she said prices could climb again in 2020, when a presidential election is due.

“The questions are whether there will be more meddling with retail power prices or whether the problem will be solved as coal prices are falling,” said Robert Maj, analyst at Ipopema Securities in Warsaw.

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TAXES AND SUBSIDIES

Spain, Norway and Denmark, where consumers face some of the highest electricity bills, have cut taxes to help reduce household bills. But such a step also leaves governments with less to spend on the shift to renewables.

The German government has hinted it could look at cutting its eco-tax on electricity that helps fund development of renewables and could consider reducing network transmission fees.

But it faces a juggling act as it seeks to keep retail prices down while paying for a move away from fossil fuels. Germany aims to close its coal power plants by 2038 and could face a bill of at least 40 billion euros for the phase out.

“More renewables bring down wholesale prices,” said Pierre Georges, lead EMEA utilities analyst at S&P Global Ratings. “But to build these renewables, you need subsidies.”

Source: in.reuters