Skip to main content

Liz Truss leaves the Conservative Party headquarters, in London, on Sept. 5.PETER NICHOLLS/Reuters

Britain’s new prime minister was working on what looks set to be Europe’s biggest energy crisis support package so far as countries scramble to protect households and businesses from soaring bills and shore up struggling suppliers.

Liz Truss, who took over from Boris Johnson on Tuesday, is planning to freeze household energy bills at the current level for this winter and next, paid for by government-backed loans to suppliers, the BBC reported, adding the scheme could cost £100-£130-billion ($151-$197-billion).

The government is also working on help for businesses, but this is likely to be more complex and would be reviewed more frequently, the BBC said.

European governments are pushing through multibillion-euro packages to prevent utilities from collapsing and protect households amid soaring energy costs triggered mainly by the fallout from Russia’s invasion of Ukraine.

Benchmark European gas prices have surged about 340 per cent in a year, and jumped as much as 35 per cent on Monday after Russia’s state-controlled Gazprom said it would indefinitely extend a shutdown to the major Nord Stream 1 gas pipeline.

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

German Chancellor Olaf Scholz said the country is examining whether it is legally possible to make retroactive a planned levy on energy companies’ coincidental profits.

Germany said on Sunday it would spend at least €65-billion on shielding customers and businesses from rocketing inflation, triggered mainly by higher energy costs.

Several countries are also providing billions in support to energy distributors exposed to wild swings in prices that are forcing them to cough up huge collateral for supplies.

Norwegian energy company Equinor has estimated these collateral payments, known as margin calls, amounted to at least €1.5-trillion ($2-trillion) in Europe, excluding Britain.

Finnish utility Fortum said on Tuesday it had signed a bridge financing arrangement with government investment company Solidium worth €2.35-billion to cover its collateral needs.

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

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

Swiss utility Axpo said it had sought and received a credit line of up to four billion Swiss francs ($5.3-billion) from the government to help its finances.

The Swiss government has lined up a 10 billion franc safety net for power firms, but decided to allocate the funds to Axpo even though the legislation is still before parliament.

The Financial Times also reported that Britain’s largest energy supplier, Centrica, was in talks with banks to secure billions of pounds in extra credit. Centrica declined to comment.

Many European power distributors have already collapsed and some major generators could be at risk, hit by caps that limit the price rises they can pass to consumers, or caught out by hedging bets.

Utilities often sell power in advance to secure a certain price, but must maintain a “minimum margin” deposit in case of default before they supply the power. This has raced higher with surging energy prices, leaving firms struggling to find cash.

Soaring prices are forcing energy-hungry industries to scale back production, raising the chances of European economies plunging into recession.

Aluminum Dunkerque, France’s biggest aluminum smelter, plans to reduce output by a fifth in response to mounting electricity prices, a source close to the matter told Reuters on Tuesday. The company was not immediately available to comment.

The benchmark front-month Dutch gas contract was down 9.6 per cent at €222 per megawatt hour at 12:15 GMT, but still up about 5 per cent from Friday’s close.

Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.