Electricity prices in Europe have skyrocketed in recent months. Global increases in wholesale gas and electricity prices mean these higher prices will come down hard for retail consumers in Europe, who may face increased energy bills in the coming winter months. Higher energy costs could also mean higher levels of inflation than already forecast.
In response to rising prices, the governments of many countries across the continent are now considering aid to help tide over the winter season, when people have more energy to heat their homes and turn on the lights earlier in the day. make use of.
What is causing the rise in energy prices in Europe?
The price and cost of energy is dynamic, and like most commodities in the world, it depends on demand and supply stretches and competition in the market and taxation among other factors. Other factors may include the energy mix used in a particular country, the amount of energy imported, geopolitical conditions, and environmental protection costs.
The European Commission’s (EC) fourth report (the report is published every two years) on energy prices and costs, which came out in October 2020, notes that the economic downturn in recent years before falling in 2019 Wholesale energy prices rose in the U.S. and surplus supplies. Prices further declined in 2020, resulting in COVID-19 pandemic, which triggered travel restrictions globally and locally.
According to the EC, for domestic consumers living in European Union (EU) countries, Germany had the highest prices for consumers in the second half of 2020, followed by Denmark and Belgium.
On the other hand, consumers living in Bulgaria, Hungary and Estonia paid the lowest prices during this period. In fact, a domestic consumer in Germany was paying almost three times the price for consuming the same amount of electricity as a person in Bulgaria was paying for it in late 2020.
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So what has changed now?
Equinor, one of Europe’s largest gas suppliers, noted in its September gas market update that strong LNG demand from Asian countries, low European stocks and rising carbon prices have driven gas prices up. These factors are expected to sustain higher gas prices during the winter season of 2021-2022.
Significantly, the update said that Europe is entering the winter season with storage at 70-75 percent of its full capacity, which is below the 5-year average. Add to this the uncertainty about supplies from Russia mainly from the Nord Stream 2 pipeline, which is currently under construction and is valued at around $11 billion. The 1,200-km pipeline will run from Ust-Luga in Russia to Greifswald in Germany and will carry 55 billion cubic meters of gas per year.
The pipeline under construction will run alongside the already completed Nord Stream 1 system, and the two together will supply a total of 110 billion cubic meters of gas to Germany per year.
As of now, European countries depend on Russia for 40 percent of their gas needs. In August, Russian-state-owned Gazprom announced it would cut natural gas supplies to Europe due to a fire at a Siberian gas processing plant.
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