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The Days of Energy Deregulation Are Over in Europe


After decades of promoting a free-market approach to the electricity and natural gas industries, European governments are regaining control of these vital functions. Record-high energy prices, partly a result of Russia’s tightening of gas supplies, are prompting lawmakers to abandon economic orthodoxy and undo years of draconian deregulation.

Britain, perhaps the most market-oriented of the major European countries, is on track to take one of the biggest steps in this direction. Prime Minister Liz Truss, two days into office, is widely expected on Thursday to announce a freeze on electricity and natural gas bills for consumers and some businesses.

The intervention, which could cost the government up to £150 billion ($172 billion), would prevent household energy bills from rising by around 80% next month, potentially slowing inflation by two years. country numbers. In recent years, the UK has regulated energy prices for households, but there is a growing political consensus that the country cannot cope with the extremes of the current market, where Prices for natural gas and electricity have reached levels several times their norm.

At the same time, the European Union has Proposal to limit the price of Russian gas and negotiate with Norway, another large but friendly gas supplier. Since power plants running on natural gas often fix electricity prices, Brussels wants to impose a tax on generators from non-gas sources, such as wind and nuclear, that have lower operating costs and use Use that revenue to help people and companies that are struggling. Electricity bill.

“We are currently faced with astronomical electricity prices for households and companies, and with great market volatility,” said European Union President Ursula von der Leyen.

Many other governments have intervened in the energy sector since Russia, the main energy supplier for decades to the continent, recently started cutting supply.

France has tightly controlled electricity prices for consumers, despite soaring wholesale costs. The German government has extended a line of credit worth 9 billion euros (about $9 billion) to one of the country’s largest gas suppliers, Uniper, which Berlin seems to consider too important to be can be done. The German government has also agreed to take a large stake in the Düsseldorf-based company, and announced 65 billion euro aid package to help households stay warm during the approaching winter.

Supplying gas and electricity was once a major function of governments across Europe, a role cemented in the rebuilding of economies after World War II, as populations grew. Growth requires tight planning and control of scarce resources. But time and time again the government has sought to liberalize these industries, in the same way that it did with the telephone and broadcasting services, theoretically spurring companies to compete to provide cheapest electricity and gas for customers.

In recent years, European regulators have pushed the price of natural gas determined by trading on so-called hubs such as the TTF in the Netherlands. rather than long-term, less transparent agreements with suppliers like Russia’s Gazprom or the Norwegian Equinor.

That shift has helped keep costs down for consumers in recent years when gas was typically cheap, but in times of war it suddenly exposed them to soaring energy prices, raising questions. about whether markets can be trusted to produce consistent results.

Jonathan Stern, founder of the gas program at the Oxford Institute for Energy Studies, says the crisis will “destroy much” of the “liberal or competitive market that took 30 years to create”.

It’s not hard to see why governments are taking these steps. Europe is caught in a bitter battle with Russian President Vladimir V. Putin over Ukraine, and Putin has turned energy markets into a proxy battleground, choking off natural gas supplies and help raise the price of that fuel and the electric power it generates. record level. Consumer advocates are warning of severe hardship, “poverty” and civil unrest this winter, while business groups say that without intervention, a wave of disruptions will result. production may occur afterwards.

Some analysts argue that Russia’s restriction and manipulation of gas supplies has distorted existing markets to the point that governments have no choice but to act.

“They have really disrupted the market, which is why this cannot continue,” said Henning Gloystein, director of Eurasia Group, a political risk firm.

Energy industry executives have warned that Russia’s behavior in the market has created volatility that could force companies to put up large amounts of cash as collateral to conduct transactions. normal translation. As a result, otherwise healthy companies could find themselves “into a situation that is completely improbable,” says Kristian Ruby, general secretary of Eurelectric, a trade group representing power companies. , said.

In a sign of the turmoil, Mr. Ruby said that trading volume has dropped markedly in the electric markets. “That creates problems for the system if the market is illiquid,” he said.

Mr. Ruby said that to avoid dire consequences, regulators should relax regulations requiring cash or gold as collateral, and governments should provide lines of credit to suppliers. energy. The European Union suggested on Wednesday that it was ready to take the latter step.

Some experts like Mr Stern of the Oxford Institute for Energy Studies worry that once Europe has gone far enough on the path of intervention, it will be difficult to turn back. “There is a feeling that all of this is temporary; that once we work things out with Putin, things will go back to normal, but it won’t,” said Mr. Stern.

Analysts say once the consumer subsidies start, they can be difficult to end, putting a strain on public finances.

On the other hand, Gloystein of Eurasia Group thinks the package that the European Union is proposing looks like an important step to stabilize the situation.

The traumas experienced by Europe over the past year in the energy markets have prompted discussion of the changes needed to fully encourage and regulate cleaner technologies such as wind, solar and hydrogen. . For example, it doesn’t make sense for the price of wind and solar power to rise and fall with the price of natural gas.

The question, however, is whether Europe is moving towards a cumbersome, state-controlled system that could baffle investors.

“The challenge when this crisis is over is to introduce something better,” said Gloystein.

Matina Stevis-Gridneff contribution report.



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