Europe starts to feel heat from rising energy prices

Spain has announced a €3bn raid on energy companies’ profits and tax cuts for consumers as it tries to contain political damage caused by soaring electricity and gas prices that are putting pressure on governments across Europe. The measures were agreed by Pedro Sánchez, prime minister, and his cabinet yesterday but prompted an angry response from Iberdrola, the Spanish renewable energy group, which accused the government of undermining investor confidence. The surge in energy prices has become the most pressing issue for Sánchez’s leftwing minority government after wholesale prices hit record levels throughout the summer. Bills for consumers rose 35 per cent in the 12 months to August. Madrid said it was targeting €2.6bn in “excess profits” from utilities that do not use gas but have benefited from the way rising gas prices have driven electricity prices higher. This follows a similar initiative, announced in July, to claw back about €650m from energy companies whose income has increased because of the rising cost of carbon. 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”. Iberdrola said the plan would “only create more problems for customers in the months and years ahead”. The company added: “It will also undermine investor confidence in the country, at a critical time when Spain needs billions of euros of private investment to deliver the projects behind ambitious climate change targets.” 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 in 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.” The French government has suggested it would consider extending direct subsidies for fuel payments, while Greece plans a €150m 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 2008 record. 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. Roberto Cingolani, Italy environment minister, warned on Monday Italian electricity bills could rise by as much as 40 per cent in the next quarter because of rises in gas and carbon prices. Rising energy prices have also put pressure on the European Commission, which in July proposed a 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 poor people, who cannot easily afford to switch to greener and lower-emissions fuels. Additional reporting by Eleni Varvitsioti and Miles Johnson