EU seeks solution to energy bills conundrum
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The issue of how to deal with the spike in energy prices, which has been aggravated by the war in Ukraine, is far from solved. Many southern EU nations are in favour of an energy market overhaul including the decoupling of electricity from gas prices, with Spanish prime minister Pedro Sánchez being one of the biggest proponents of this idea. We’ll look at where the discussions are as EU finance ministers gather in Brussels to pore over options on how to cushion the impact of the war on the bloc’s economy and public finances.
Meanwhile, EU ambassadors are reconvening today to finalise a fresh package of sanctions, which, as the Financial Times was first to report yesterday, is likely to include Chelsea football club owner Roman Abramovich.
Headed for Rome today, US national security adviser Jake Sullivan is scheduled to hold high-level discussions on the Russian invasion of Ukraine with Yang Jiechi, China’s top foreign policy official — after the FT reported yesterday that US officials say Moscow had asked for military help from Beijing from the very beginning of the war.
In practical news on how European companies can help Ukrainian producers that still operate in the country, we hear from Kyiv’s trade group about partnerships that could still make a difference on the ground.
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Interventionists vs free marketeers
Pedro Sánchez, the Spanish prime minister, said he will begin a tour around the EU to drum up support for reform to the union’s energy markets, given the surging prices hitting households across Europe, write Sam Fleming and Andy Bounds in Brussels.
The push comes after Ursula von der Leyen, the European Commission president, on Friday pledged to come forward with ideas to limit the “contagion” between gas prices and electricity prices, alongside a package of “insurance” to shield the EU from supply disruptions.
The question of how aggressively to intervene in the functioning of the energy markets is now one of the most urgent debates in the EU, ahead of a summit of leaders this month in Brussels.
Energy prices will hang heavily over meetings of finance ministers today and tomorrow in Brussels, as they chew over the threat to growth posed by rising inflation. One EU official warned of a “price shock” but added that “at this point we still expect growth to continue”.
Member states clashed over the energy topic on Friday, as they differ over how radical any changes to the markets should be. Spain has long been seeking a way of loosening the link between gas and electricity prices in the spot markets.
The energy system in the union uses a “pay as you clear” model, under which wholesale electricity costs reflect the price of the last unit of energy bought via auctions in member states.
Gas is usually the fuel that is needed to make sure enough energy is supplied to meet demand, making surging gas prices a potent influence on electricity prices.
Madrid is now seizing on the current crisis to push its demands. It is not alone. Bruno Le Maire, the French finance minister, last week complained about the structure of EU electricity markets, saying that the idea that carbon-free electricity prices should still depend on fossil fuel prices was “absurd” and that it must change.
Other member states are also pushing for far-reaching changes. Greek prime minister Kyriakos Mitsotakis, for example, argued last week in favour of caps on gas prices, a position that has sympathy in Belgium and Italy as well.
Split nearly evenly along the north-south divide, the liberal free-market parties in government in the Netherlands and Scandinavian countries but also in Germany oppose deep government interventions in the electricity markets. Some believe the current situation is a temporary one and that the system generally delivers lower prices.
The commission was also long sceptical of tinkering with the market. On Tuesday it conceded some ground, suggesting national capitals reduce prices using a temporary windfall tax on utility profits, which could reach €200bn in 2022. It also offered to loosen state aid rules to allow subsidies to intensive energy users.
Then von der Leyen told national leaders on Thursday night that Brussels would present options for “emergency measures” to limit the link between gas and electricity prices — including “temporary price limits”.
This comes alongside a plethora of national measures to limit the pain for consumers from higher energy prices — all of which have become even more urgent, given the continuing debate over when and if the EU should block Russian oil exports. France is, for example, planning a 15 euro cents per litre rebate on petrol prices, the country’s prime minister said over the weekend.
“Something needs to be done at an EU level, because member states individually can’t keep on spending huge amounts of money trying to mitigate prices,” said an EU diplomat.
Another diplomat said the discussions were likely to continue until next week’s EU summit (March 24-25). “The market is doing what it’s supposed to do, but we don’t like the consequences. Do you then address the market or the consequences?”
Chart du jour: Polish generosity
In the two weeks since the Russian invasion, 2.7mn people have fled Ukraine, in what the UN has described as Europe’s fastest-growing refugee crisis since the second world war. More than 1.68mn have crossed into Poland, triggering an outpouring of generosity from Poles. (More here)
Helping Ukrainian businesses
Western businesses have been quick to quit Russia because of its attack on Ukraine. Now comes an opportunity to help Ukraine’s economy, rather than damage Russia’s, writes Andy Bounds.
The Ukrainian Business and Trade Association has set up a service to match companies outside the country with those inside that are still functioning.
Dmytro Los, chair of the UBTA and adviser to the Ukrainian trade minister, said much of the country remained untouched by the Russian invasion but that companies were struggling to find purchasers for their goods.
He said businesses outside Ukraine could contact his organisation to buy goods at cost price and the Ukrainian companies would distribute them to people there.
“So a supermarket could buy €200,000 of chicken and the producer will send it to the army or citizens who need to eat,” said Los on a visit to Brussels. “If these companies do not get cash, they will close in one or two months because they cannot buy energy or pay their workers.”
An increasingly complicated alternative is to buy Ukrainian goods for export. With the Black Sea blockaded by Russia, goods must travel by road to Poland. “But all the truck drivers went to war,” Los explained.
He said the government was setting up logistics hubs near Lviv where goods could be collected. This route would require insurance companies to provide cover for European truck companies to collect the goods — and drivers willing to go. And with Russian missiles hitting a military base near the Polish border yesterday, that route carries growing risks.
What to watch today
US and China meet in Rome to discuss the war in Ukraine
Euro area finance ministers meet in Brussels
EU ambassadors finalise the latest round of Russia sanctions
. . . and later this week
EU finance ministers meet in Brussels tomorrow
Nato defence ministers hold an emergency meeting on Wednesday
Belgium decides on Friday whether to shut down all nuclear reactors by 2025
Billionaire guidance: Hedge fund founder Sir Christopher Hohn expects the greatest “demand disruption” for oil since the 1970s shock to trigger a surge in renewable energy investment. The activist investor, whose TCI Fund Management has more than $40bn in assets, said high oil prices were “a positive thing” for the climate as the energy crisis prompts a “dramatic acceleration” in decarbonisation
Election déjà vu: The war in Ukraine has brought France back to where it was a year ago, with voters likely to have to choose between Emmanuel Macron and Marine Le Pen in the second round on April 24, a repeat of the contest won by the “neither right nor left” Macron five years ago.
Stuck planes: The value of bonds backed by aircraft that are trapped in Russia has tumbled this month, as leasing companies struggle to repossess planes rented to Russian airlines. US and European sanctions have presented a logistical challenge to recover the aircraft that are still in Russia, with Moscow so far signalling its unwillingness to allow the planes to leave the country.
Paid help: British households will be offered £350 a month to provide accommodation for “tens of thousands” of Ukrainian refugees expected to come to the UK. The “Homes for Ukraine” scheme has been devised after strong criticism by MPs and refugee groups that the government has not been generous enough, particularly compared with the EU.
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