EU seeks US$140 billion to insulate consumers from energy crisis

The European Union's executive outlined plans on Wednesday to raise more than US$140 billion from energy firms to help shield households and businesses from soaring prices that threaten economic recession and insolvencies.

European gas and power prices have rocketed this year as Russia cut fuel exports to retaliate for Western sanctions over its invasion of Ukraine, leaving many struggling to pay bills and utilities grappling with a liquidity crunch.

The European Central Bank's chief economist said these higher prices remain a "dominant driving force of inflation" in the euro zone.

European governments have responded with measures ranging from capping consumer electricity and gas prices to offering credit and guarantees to power providers at risk of collapse.

"EU Member States have already invested billions of euros to assist vulnerable households. But we know this will not be enough," European Commission President Ursula von der Leyen told the European Parliament.

In separate steps to try and protect consumers from record-high inflation, France announced an extension into 2023 of energy price caps and Denmark prepared its own temporary ceilings on energy bills.

And in Germany, Uniper, its largest importer of Russian gas, said the government could take a controlling stake to help it cope with the crisis, and a local utilities industry group warned of insolvencies among power companies.

The European Commission's proposal includes capping revenues from electricity generators that have gained from higher prices but do not rely on gas. It also included measures to force fossil fuel firms to share windfall profits from energy sales.

"In these times it is wrong to receive extraordinary record revenues and profits benefiting from war and on the back of our consumers," von der Leyen said.

National governments would be responsible for recouping the excess revenue and rechannelling it into measures that could include lowering electricity bills, or helping consumers invest in energy saving measures such as home insulation.

No cap for now

The EU plan did not include an earlier idea to cap Russian gas prices, after Russia warned it could cut of all fuel supplies if one were introduced.

The Commission said it was still looking into a Russian gas price cap, and discussing the idea of broader gas price caps, which have also divided member states, and were not included in Wednesday's proposals.

Europe's benchmark gas price rose to about 208 euros per megawatt hour (MWh), well below an August record above 343 euros but more than 200% up on a year ago.

Europe has raced to refill its storage facilities and has already met a target to have them 80% full by November. But Russian supply cuts, which it says are due to sanctions hindering maintenance, makes the winter outlook uncertain.

Moscow played down the impact of lost gas sales to Europe, saying there were other countries willing to buy its energy as Europe seeks to reduce its dependence on Russia.

"Months of geopolitical wrangling have left the European gas market whiplashed, with volatile prices stemming from lack of supply, potential market intervention, and wider uncertainty,” Rystad analyst Zongqiang Luo said.

Insolvencies?

As part of the broad package of measures, the European Union's securities watchdog will set out temporary market fixes by Sept 22 to help ease a liquidity squeeze faced by energy firms, the European Commission said.

Utilities often sell power in advance but must offer collateral to clearers in case of default before they supply the power. As gas prices have soared, so have collateral demands.

"We will work with market regulators to ease these problems by amending the rules on collateral - and by taking measures to limit intra-day price volatility," von der Leyen said.

Earlier, Germany's local utilities industry group VKU warned about possible insolvencies. Several utilities in the EU and Britain have already collapsed as they have often been unable to pass on the full impact of gas price rises to consumers.

"If individual companies are allowed to go bust, then it could become more difficult to finance the activities of all," VKU Managing Director Ingbert Liebing told Reuters, adding the group was in talks with the German government. 

Meanwhile, Uniper's shares tumbled 20% after the company, which has already secured 13 billion euros of credit lines from the state, most of which it has already drawn, said the government could take a controlling stake.

The Commission said it was also working on a transactions-based price benchmark that more accurately reflects the market for gas imports.

'Last resort'

In France, grid operator RTE said there was no risk of a total winter blackout but did not rule out some power cuts at peak times, saying reducing demand was essential. 

"As a last resort, organised, temporary and rotating load shedding outages can be activated to avoid a widespread incident," RTE said.

And the French government said the allowed increase of power prices for households will be capped at 15% next year.