Explainer: Bleak house: Why Europe faces steep winter energy bills

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  • Bulk gas prices up 400% this year, electricity prices double
  • The burden of rising bulk energy costs is passed on to consumers
  • European families will feel the pinch this winter
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LONDON, Oct 8 (Businesshala) – Families across Europe face very high winter energy bills as a global jump in wholesale electricity and gas prices, and consumer groups have warned that the most vulnerable in the region are those in need of fuel. can be affected by poverty.

Why the high prices?

Energy companies pay wholesale prices to buy gas and electricity, which they then sell to consumers. Like any market, it can move up or down, driven by supply and demand.

Prices usually increase in response to greater demand for heating and people turning on the lights earlier in the winter, while they are usually lower in the summer period.

But prices have skyrocketed due to lower gas storage stocks, higher EU carbon prices, fewer liquefied natural gas tanker deliveries due to higher demand from Asia, lower-than-normal gas supplies from Russia, low renewable production and a lack of infrastructure.

Benchmark European gas prices in the Dutch TTF hub have risen more than 400% since January, while benchmark German and French electricity contracts have more than doubled.

How long can this last?

Europe’s winter heating season typically begins in October and despite promises from some suppliers of more gas, wholesale prices are not expected to drop significantly during the remainder of the year.

Many analysts expect the price to remain bullish next year.

Russia, Europe’s biggest gas supplier, said this week that certification of the Nord Stream 2 undersea gas pipeline from Russia to Germany, which it expects approval from a German regulator, could calm European gas price hikes.

The regulator, which said in September that it had four months to complete certification, said it could not rule out that Nord Stream 2 could start operations soon, adding that all The technical requirements were met.

But Gazprom’s ability to supply more volumes to Europe could be limited this winter as it is still filling its domestic gas reserves and is already nearing a 10-year high, Bank of America analysts said. .

Last month, Norway’s EQNR.OL, Europe’s second-largest supplier, said it would boost natural gas exports to Europe. Norway supplies a third of Britain’s gas.

Why do retail prices rise?

Several energy suppliers announced hikes in retail tariffs in recent months, passing higher wholesale costs to consumers.

Wholesale costs can make up a substantial portion of the bill. In the UK, for example, on a dual fuel bill (electricity and gas), the wholesale cost can be 40% of the total.

So when there is a significant increase in wholesale market prices, suppliers can increase consumer retail tariffs.

What makes up the UK’s domestic double fuel bill?

Suppliers can buy energy on the day of delivery, the day before, and for months or even seasons at the wholesale market.

They have to try and predict when the price will be cheaper and buy the right amount to meet the needs of their customers.

If suppliers do not buy enough energy, they may have to buy more at a higher price depending on market movements. This year, prices kept climbing throughout the summer.

Can anyone intervene?

European Energy Commissioner Kadri Simsson has said she will soon present a plan to change the EU gas market.

One of the ideas proposed by Spain is for the EU to leverage the power of its single market of 450 million consumers to jointly buy gas and create a strategic EU gas reserve, but details are scant on this. that how it will work.

Some national governments have announced measures to ease the winter burden on households, such as subsidies, price caps or redirecting energy company profits to consumers.

Britain, which relies heavily on gas for heating, introduced a price cap on the most widely used energy tariffs in 2019, aimed at what former Prime Minister Theresa May called “rip-off” pricing. was to end.

However, Britain’s energy regulator Offgame has raised the cap on the most widely used tariffs, called standard variable tariffs, to 12-13% since October. It said on Friday that it expects a “significant” increase in the cap again next April.

Proposals for UK government intervention include state loans and the creation of a “bad bank” to support energy suppliers, as well as an unexpected tax to help ease the burden on household bills.

“However, it is unclear how any such proposals might be implemented and the impact they would have on the industry,” Moody’s Investor Service said.

What can consumers do?

Due to a deregulated market, the UK has the largest choice of energy suppliers to consumers.

Now in a market of about 40 suppliers, smaller firms have less capital to hedge their bulk power purchases against rising prices and nine firms serving more than 1.7 million customers, or 6% of the market, have since the beginning of September. Business has been closed.

Consumers are usually encouraged to switch providers or to cheaper tariffs.

However, consumer groups in the UK now say that standard variable tariffs, subject to price limits, are among the cheapest as smaller suppliers fail and cheap deals are no longer available.

“But the cap level is not the maximum anyone will pay. The price cap sets a limit on the rates you pay for each unit of gas and electricity, so if you use more, you pay more. Will do,” said Andrew Capstick, energy analyst at the Price Comarison website moneysupermarket.com.

Regulators such as Britain’s Offgame urge consumers to contact their energy provider if they are struggling to pay their bills, to explain when and how much can be paid.

Energy efficiency measures such as better insulation, energy efficient lighting and smart meters are also advised, but may require upfront costs. It is very easy to reduce energy use in the summer months.

Reporting by Nina Chestney; Editing by Carmel Crimins

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