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Wednesday, October 5, 2022

Liz Truss Stands by Europe as It Faces a Crucial Energy Crisis

Liz Truss, who took over from Boris Johnson on Tuesday, plans to freeze household energy bills at current levels for this winter and next, paid for by government-backed loans to suppliers

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UNITED KINGDOM/EUROPE: Britain’s new Prime Minister has already taken cognisance of Europe’s biggest energy crisis. She has planned a support package as the country tries to protect households and businesses from soaring bills and prop up struggling suppliers.

Liz Truss, who took over from Boris Johnson on Tuesday, plans to freeze household energy bills at current levels for this winter and next, paid for by government-backed loans to suppliers, the BBC reported, saying the scheme could cost £100bn-£130bn ($116-151 billion).

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European governments are pushing for multibillion-euro packages to prevent the collapse of public services and protect households at a time of soaring energy prices, driven mainly by the impact of Russia’s invasion of Ukraine.

Benchmark gas prices in Europe have risen about 340% for the year and jumped as much as 35% on Monday after Russia’s state-controlled Gazprom ( GAZP.MM ) said it would indefinitely extend the shutdown of the main Nord Stream 1 gas pipeline.

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Europe has accused Russia of weaponizing energy supplies in retaliation for Western sanctions imposed on Moscow over its invasion of Ukraine. Russia blames the sanctions for causing gas supply problems, which it attributes to pipeline faults.

Germany said on Sunday it would spend at least 65 billion euros to protect consumers and businesses from skyrocketing inflation, driven mainly by higher energy costs.

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Several countries are also providing billions to support energy distributors exposed to wild price swings that force them to cough up huge supply security.

Norwegian energy company Equinor estimated that these advance payments, known as margin calls, totalled at least 1.5 trillion euros ($1.5 trillion) in Europe excluding Britain.

Finland’s Fortum ( FORTUM.HE ) said it had signed a 2.35 billion euro bridge financing deal with government investment company Solidium to cover its collateral needs.

A Finnish government official told Reuters the support was in addition to 10 billion euros of liquidity guarantees announced by Helsinki for energy companies on Sunday.

“The ongoing energy crisis in Europe is caused by Russia’s decision to use energy as a weapon and is now also seriously affecting Fortum and other Nordic electricity producers,” Fortum CEO Markus Rauramo said in a statement.

Switzerland’s Axpo ( AXPOH.UL ) stated that it sought and received a credit line of up to 4 billion Swiss francs ($4.1 billion) from the government to help its finances.

The Financial Times also reported that Britain’s biggest energy supplier, Centrica ( CNA.L ), is in talks with banks to secure billions of pounds in additional loans.

Many European electricity distributors are already shattered, and some major producers are at the risk, hit by caps that limit price increases they can pass on to consumers, or caught in hedging bets.

Power companies often sell electricity in advance to secure a certain price, but must maintain a “minimum margin” deposit in case of failure before delivering the electricity. This has increased sharply with rising energy prices, leaving firms struggling to find cash.

Rising prices are forcing energy-intensive industries to cut production, increasing the chances of European economies falling into recession.

Aluminum Dunkerque, France’s biggest aluminium smelter, plans to cut production by a fifth in response to rising electricity prices, a source close to the matter told Reuters on Tuesday. The company was not immediately available for comment.

Also Read: Russia Would Destroy Europeans’ Winters, Zelensky Warns

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