Spain to claw back €3bn from utility groups as energy prices soar

Newsletter: Europe Express

Spain has announced a €3bn raid on energy companies’ profits and temporary tax cuts for consumers as it tries to contain political damage caused by soaring electricity and gas prices that have put pressure on governments across Europe.

The surge in prices has become the most burning issue for Pedro Sánchez’s leftwing minority government, which is behind in the polls. Wholesale prices have hit record levels throughout the summer, while bills for consumers rose 35 per cent in the 12 months to August.

In response, the Spanish cabinet approved a range of measures on Tuesday, including a raid on about €2.5bn in utilities’ “excess profits”, in addition to efforts already under way to claw back about €650m from energy companies.

The government says it will use the funds to pay infrastructure charges that would otherwise have fallen to consumers, thus reducing household bills.

Sánchez also said consumer taxes on electricity would be cut by €1.4bn until the end of this year. “We have made a firm commitment that all citizens will pay the same electricity bill [this year] as in 2018,” he said, describing energy companies’ levels of profits as “not acceptable”.

Because many consumers pay variable rather than fixed tariffs, Spain’s retail electricity prices are particularly closely linked to the country’s wholesale electricity market.

But rising prices are affecting Europe as a whole, driven by factors such as liquefied natural gas demand by China as an alternative to coal, higher carbon prices and reduced supply from Russia.

“In Spain people are feeling the pinch in their personal finances, but this is not a Spanish problem; it is a European if not a world problem,” said Angel Talavera, head of European economics at Oxford Economics. “Because of the different way the Spanish market works, much of the world has not noticed it yet, but sooner or later a similar trend will happen in other countries.”

Indeed, over the past few days the French government has suggested it would consider extending the number of people who qualify for direct subsidies for fuel payments, while Greece has announced a €150m energy transition fund to compensate for recent electricity price rises.

Last week, benchmark wholesale electricity prices in Germany for delivery next year reached more than €90 a megawatt hour, or about double the level at which they started the year, surpassing the previous record hit in summer 2008 when oil prices were approaching $150 a barrel. 

Julien Hoarau, the head of EnergyScan, the analytics unit of French utility Engie, warned that without more clarity on the level of Russian gas supply to Europe over the winter the market would remain tight and prices elevated. “We are only in September so it is quite worrying for the coming months where we will have higher gas demand for heating,” he said.

Roberto Cingolani, Italy’s environment minister, warned on Monday that Italian electricity bills could rise by as much as 40 per cent in the next quarter because of rises in gas and carbon prices.

The rising energy prices have also put political pressure on the European Commission, which in July proposed a big package of green policies, including a carbon price on car fuel and heating for buildings.

The proposal has sparked a backlash from countries including Spain and France, which argue it will hit the poor, who cannot easily afford to switch to greener and lower-emissions fuels.

MEPs were debating the reforms, which require approval from a majority of member states and the European parliament, in Strasbourg on Tuesday. To stave off criticism, the commission has proposed a social fund worth billions of euros to help households most affected by the new carbon-pricing regime.

Additional reporting by Eleni Varvitsioti and Miles Johnson

*This article has been amended since original publication to delete a reference to Spain’s dependence on foreign sources for energy, which concerned the overall energy mix rather than just the electricity market

Twice weekly newsletter

Energy is the world’s indispensable business and Energy Source is its newsletter. Every Tuesday and Thursday, direct to your inbox, Energy Source brings you essential news, forward-thinking analysis and insider intelligence. Sign up here.

Source link

Leave a Reply

Your email address will not be published. Required fields are marked *