Britain will limit consumer energy bills over two years and channel billions of dollars to power companies, Liz Truss, the new leader of the country’s energy department, said Thursday. This is in an effort to address an energy crisis in which Russia and Europe are battling an ever-increasing economic war.
European governments have spent hundreds of billions of euros to assist consumers and businesses with rising energy bills. The price of gas has soared in the wake of Russia’s invasion.
Truss stated that “this is the time to be bold”, pointing out that there was no way to avoid a global energy crisis and offered no cost-free solutions. Truss made this statement to parliament after excluding “handouts” from her campaign for prime minister.
Truss’s package, which is funded by government borrowing, could be costly to Britain around 150 billion pounds. This would ratchet financial markets where the pound hovers at the lows of 1985.
Russia’s invasion of Ukraine exposed Europe’s dependence on Russian gas. The bloc accused Moscow of using energy supplies to retaliate for Western sanctions. Russia blames the sanctions for the problems with gas supply.
The European Union’s energy ministers will meet Friday to discuss their response to the crisis. This follows a mixed response to a Russian gas price cap. Moscow may be provoking them.
The EU had announced Wednesday’s price cap, but Russian President Vladimir Putin threatened that he would cut all energy supplies to the West if such limits were implemented. He warned the West that it would freeze like the tail of a wolf in a Russian fairy tale.
GERMAN SUBSIDIES
According to measures laid out in a paper by the Economy Ministry that was seen by Reuters Thursday, Germany will subsidise basic electricity use for households as part of its economic protection measures. It will also set aside lower-cost power for small and mid-sized businesses.
The paper stated that electricity distributors would have to give households a certain amount of electricity at a reduced price per kilowatt-hour, and a similar contingent for small and medium-sized businesses.
Russia’s deliveries being in doubt, Europe is also looking for alternatives to gas and delivery routes. Several countries are pushing for more import terminals for liquified natural gases (LNG).
The Netherlands announced that the first ship to bring LNG arrived at Eemshaven’s new terminal on Thursday.
Shell, France’s Engie, and CEZ of the Czech Republic have booked capacity.
Although no policies are expected to be approved at Friday’s EU ministerial meeting, it should clarify which options have the strongest support.
Diplomats stated that the Baltic states support a price cap for Russian gas. This is also true for countries that don’t rely on Moscow as fuel. Others warned that it would require unity among EU member states to make it happen.
Some suggested that a price cap wouldn’t accomplish much given the low volume of gas supplied to Europe and Moscow’s lower gas revenues. One diplomat from the EU stated that it would not solve any problems.
UK SUBSIDIES
Truss stated that the average British household’s energy bill would remain at around £2,500 pounds per year for two years. This will prevent a price rise expected next month, which could threaten millions of households.
She stated that new supply methods would be implemented, including a moratorium on drilling for oil and gas and the issuance of new exploration licences for oil and gas exploration in the North Sea.
Separately, the Treasury and Bank of England will launch an initiative worth 40 billion pounds to protect energy companies from liquidity problems due to skyrocketing gas prices.
Similar schemes have been established by other countries, such as Denmark’s announcement on Thursday of 100 billion Danish crowns ($13.4 Billion) in guarantees for energy companies.
Reuters saw a Russian strategy document that showed that Putin’s threats to cut off all energy supplies may prove to be a double-edged weapon for Russia.
The report provides sector-specific details of the impact of sanctions.
- Agriculture: Imports account for 99% of the poultry production and 30% of Holstein dairy cow output. Imports are a major source of staples such as sugar beets, potatoes, and fish feeds.
- Aviation: 95% of passenger volume is carried by foreign-made aircraft. The inaccessibility to import spare parts could cause the fleet to decline as they are retired from service.
- Machine-building: Only 30% of machines are Russian-made, and the local industry isn’t able to meet the rising demand
- Pharmaceuticals: Around 80% of the country’s production is dependent on imported raw materials
- Transport: EU restrictions triple the costs of road transport
- Communications and IT: Russia could be left without SIM cards by 2025. Russia’s telecommunications sector will likely fall five years behind the world leaders in 2022.
According to the report, a complete cutoff of gas supplies to Europe (Russia’s largest export market) could result in tax revenue losses of up to 400 billion rubles ($6.6 million per year). Even in the medium term, it won’t be possible for lost sales to be fully compensated with new markets.
“A reduction of supplies to foreign customers will lead to an imbalance within the system when low prices on the domestic market are offset with export revenue,” stated the document. It was discussed in a closed session in Moscow by Prime Minister Mikhail Mishustin on Aug. 30.
