European governments face hurdles to curb high Energy prices

European governments face hurdles to curb high Energy prices

General view of the Walney Extension offshore wind farm operated by Orsted off the coast of Blackpool, Britain September 5, 2018. LONDON, January 19, Reuters -- European governments have spent tens of billions of euro trying to shield consumers from record high energy prices, and themselves from voters' wrath, but the measures look set to fall short.

From Athens to Oslo, lawmakers across Europe have taken initiatives such as removing VAT on home energy bills and providing targeted help for the most needy households, some of which are facing elections this year. The measures were not much changed against a 330% surge in European gas prices last year, due to the lag in passing prices on wholesale markets onto consumer utility bills.

The measures announced in western Europe will only cover about a quarter of the price rises on average, according to Harry Wyburd, European utilities analyst at Bank of America Securities.

BofA analysts estimate that the average western European households spent around 1,200 euros $1,370 a year on gas and electricity in 2020. According to current wholesale prices, they estimate that this will rise by 54% to 1,850 euros.

Since most energy suppliers buy or hedge, the power or gas they need to supply customers around 6 to 9 months in advance, high prices have yet to filter through due to lower than normal gas supplies from Russia and low storage levels.

The price you pay today to switch your kettle on is based on whatever the gas or electricity price was on average about 6 -- 9 months ago. It's like it's happening in slow motion, said Wyburd.

Violent protests in Kazakhstan over rising costs for car fuel reminded politicians of the response that such spikes can cause voter turnout. In France, Economy Minister Bruno Le Maire pointed out the events in Kazakhstan as one of the reasons his government has moved to shield households from higher prices, including an increase on regulated electricity costs at 4%. French lawmakers are particularly wary of a fuel tax increase in 2018 that has resulted in wider protests against authorities.

The number one issue for voters ahead of the French election is purchasing power, according to polls. An Opinion-Kea poll showed that on Jan. 18, 57% of French voters thought purchasing power to be an important issue and ahead of social protection, security, immigration and unemployment. Two weeks earlier, the figure was 51%.

If the price cap is not kept, electricity prices are an explosive subject and political object that will be used by other parties, according to Nicolas Goldberg, Energy specialist at Colombus Consulting.

Italy was one of the first European countries to act last year, spending more than 8 billion euros since July to curb retail energy bill hikes. Rome is likely to raise taxes on energy firms that have benefited from higher prices. In the first quarter of 2022, household electricity prices are expected to rise more than 50% with gas rising more than 40%, Italian energy watchdog ARERA said. Others have had to extend measures. Spain cut a number of taxes, originally planning to keep the lower rates until the end of 2021, but in December decided to hold them at these levels until May 2022.

In the UK, millions of households are expected to face a surge of 50% in their electricity and gas bills when a price cap is lifted in April, a month before local elections in May. Robert Buckley, head of relationship development at Cornwall Insights, said that the cap has given it some time to decide what to do, but the figures involved in limiting the rise would be huge.

According to a poll of voters in the north of England where Prime Minister Boris Johnson's Conservative party won seats for the first time at the last election, 80% of those who voted for the government cited energy bills as an important issue.

An analysis of the survey by the not-for profit trade body Energy and Utilities Alliance EUA found that 17 of the 18 parliamentary seats in that area would switch back to the opposition Labour Party if an election was held now.

Consumer groups and several energy suppliers have called for Britain to do more, such as removing the 5% VAT on energy costs or cutting some green levies. National Energy Action said that the higher prices will cause a further 1.5 million households to be in fuel poverty, meaning they are unable to afford to heat their homes to the temperature needed to keep warm and healthy.

More than a fifth of British households have a household in fuel poverty, and that would take the total number of British households to 6 million, more than a fifth of homes.

A British government spokeswoman said the cap protects millions from high prices and initiatives targeted to help vulnerable households are in place.

The spokesperson said that we're going to listen to consumers and businesses about how to manage the costs of energy.