UK considers support package; Europe struggles with energy crisis

As nations race to shield citizens from skyrocketing bills and bolster faltering suppliers, Britain’s incoming prime minister was hard at work on what appears to be Europe’s largest energy crisis relief plan so far.

According to the BBC, Liz Truss, who replaced Boris Johnson on Tuesday, intends to freeze family energy prices at their current levels for this winter and the following, with the cost of the programme estimated to be between 100 and 130 billion pounds ($116 and 151 billion).

The BBC said that the government is also developing assistance for firms, but this will probably be more complicated and subject to more regular review.

In response to skyrocketing energy prices mostly brought on by the aftermath of Russia’s invasion of Ukraine, European governments are rushing through multibillion-euro packages to safeguard homeowners and prevent utilities from collapsing.

Benchmark Gas prices in Europe have increased by approximately 340% in a year, and on Monday they increased by as much as 35% after Russia’s state-overlooked Gazprom (GAZP.MM) announced it would extend the shutdown of the important Nord Stream 1 gas pipeline indefinitely.

In retribution for Western sanctions against Moscow over its assault on Ukraine, Europe has condemned Russia for turning energy supplies into weapons. Russia attributes the gas supply issues, which it attributes to pipeline defects, to the sanctions.

On Sunday, Germany announced that it would spend a minimum of 65 billion euros to protect consumers and businesses from soaring inflation, which was primarily brought on by increasing energy prices.

Several nations are also giving billions of dollars in support to energy providers that are vulnerable to big price swings that force them to pay enormous collateral for supply.

These “margin calls,” also known as collateral payments, are estimated by the Norwegian power company Equinor to have cost a minimum of 1.5 trillion euros (or $1.5 trillion) in Europe, omitting Britain.

To meet its collateral needs, Finnish utility Fortum (FORTUM.HE) announced on Tuesday that it has entered into a bridge financing agreement for 2.35 billion euros with government investment corporation Solidium.

The assistance, according to a representative of the Finnish government, is supplementary to the 10 billion euro in liquidity guarantees for electricity providers that Helsinki announced on Sunday.

Markus Rauramo, Chief Executive of Fortum, said that the existing energy crisis in Europe is a result of Russia’s choice to use energy as a tool, and it is now seriously harming Fortum and other Nordic power providers.

Swiss utility Axpo (AXPOH.UL) announced that it has requested and been granted a credit line from the government for up to 4 billion Swiss francs ($4.1 billion) to help with its finances.

The Swiss government has prepared a 10 billion franc security net for power companies, but despite the law still being in the parliament, they chose to give the money to Axpo.

The Financial Times also stated that Centrica (CNA.L), the largest energy provider in the United Kingdom, was in discussions with banks to acquire more financing worth billions of pounds. Centrica opted not to respond.

Several big generators could be in danger due to limitations that limit the price increases they can pass on to consumers or being caught off guard by hedging bets, and many European energy distributors have already collapsed.

Utilities frequently sell electricity in advance to lock in a price, but they must keep a “minimum buffer” deposit on hand before supplying the energy in case of default. With rising energy prices, this has risen quickly, leaving businesses scrambling to raise money.

Rising costs are causing energy-intensive companies to reduce production, increasing the likelihood that European economies may enter a recession.

A source familiar with the situation relayed that Aluminium Dunkerque, the largest aluminium smelter in France, aims to cut output by a fifth in reaction to rising electricity prices. The business did not immediately respond to requests for comment.

At 12:15 GMT, the front-month benchmark Dutch energy contract was trading at 222 euros each megawatt hour, down 9.6% from Friday’s close but still up roughly 5%.