European Union

Gas shortage and price rises fray nerves over energy policy

The UK is far from alone in its energy crisis. Across Europe, governments are acting to shield consumers from soaring bills, with nerves growing about the coming winter.

EU energy ministers will meet this week at an Alpine castle in Slovenia, where they will discuss global gas shortages and the European Union’s energy policy.

Since the start of the year wholesale gas prices in Europe have risen by 250%, the result of a complex cocktail of economic, natural and political forces. Globally demand for energy has shot up, as China and other major economies bounce back from the pandemic.

In Europe a cold winter and frigid spring depleted gas reserves, while a long spell of still days reduced wind power supply to the grid. Meanwhile, CO2 prices hit a record €62 (£53) this month, while Russia has declined to increase gas supplies. Now across the continent energy prices are only going in one direction: up.

The first mover in Europe was Spain, whose government last week announced emergency measures to cap energy prices and profits. Responding to a tripling of electricity prices since December, the Socialist, anti-austerity Unidas Podemos government said it had a moral duty to act and promised to bring down energy bills to 2018 levels, the year the prime minister, Pedro Sánchez, came to power. The government expects consumers to benefit from €2.6bn that would have gone to energy companies.

In France the government has pledged one-off payments of €100 to 5.8m households struggling to pay their energy bills. Italy is expected to announce a €4.5bn support programme for consumers in the coming days. In Germany wholesale power prices have risen by 50%, though some analysts say consumers have been insulated from

energy bill shock as suppliers have many long-term, fixed-price contracts. That could change over the autumn, however, just as negotiations on a new coalition government are taking place, with Germany’s energy future on the table.

Ahead of this week’s EU energy meeting, Spain has called for a “policy menu” to help the bloc react immediately to dramatic price surges. In a letter to the European Commission, the economy minister, Nadia Calviño, and her colleague in charge of ecological transition, Teresa Ribera, said: “Member states should not need to improvise ad hoc measures every time markets malfunction.”

Spain wants measures to limit financial speculation on the EU carbon market and common action to buy gas reserves.

The EU executive is also facing calls to investigate Russia’s state gas monopoly, Gazprom, after MEPs said they suspected the company of market manipulation.

Russia provides 41% of the EU’s gas, but for months Gazprom has refused to increase the supply to the spot market, where trade is for shortterm needs rather than long-term contracts. The move is interpreted as the Kremlin’s attempt to twist arms for speedy approval of Nord-Stream 2, the controversial pipeline under the Baltic Sea, which will double Russian gas exports to Germany. Completed earlier this month, the pipeline cannot start delivering gas until it clears regulatory hurdles in Germany. In a letter to the European Commission this month, 40 MEPs said they were suspicious of the company’s “effort to pressure” Europe to quick approval of the pipeline.

Aside from geopolitical intrigue, the energy price spike is intensifying the conflict over the EU’s response to the climate emergency. Lawmakers have already blamed the spike in prices on high CO2 price, a product of EU regulation.

Under the EU’s pioneering emissions trading system (ETS), electricity producers and energyintensive industries are required to buy pollution permits.

Poland, which is already battling the EU over coal mining, has complained about the costs of buying ETS allowances, after CO2 prices hit a record level. Earlier this month the EU’s CO2 price hit €62, up from €30 at the start of the year.

According to the EU’s top official in charge of the green deal, Frans Timmermans, only one-fifth of the energy price rise can be attributed to CO2 prices.

His analysis is backed up by Ember, a thinktank that is promoting the transition away from coal: the group has found that fossil gas prices account for the lion’s share of EU electricity prices from combined cycle gas turbines.

Timmermans told the European parliament last week that rising energy prices showed the necessity of speeding up the shift to renewable energy. “The irony is that if we had had the green deal five years earlier we would not be in this position because then we would have less dependency on fossil fuel natural gas,” Timmermans said.