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ENERGY

European electricity prices soar as tough winter looms

European electricity prices soared to new records on Friday, presaging a bitter winter as Russia's invasion of Ukraine inflicts economic pain across the continent.

electricity pylons at sunset
Energy prices have soared in Europe as Russia has slashed natural gas supplies to the continent. Photo by Matthew Henry on Unsplash

The year-ahead contract for German electricity reached 995 euros ($995) per megawatt hours while the French equivalent surged past 1,100 euros — a more than tenfold increase in both countries from last year.

In Britain, energy regulator Ofgem said it would increase the electricity and gas price cap almost twofold from October 1 to an average £3,549 ($4,197) per year.

Ofgem blamed the increase on the spike in global wholesale gas prices after the lifting of Covid restrictions and Russian curbs on supplies.

The Czech Republic, which holds the rotating European Union presidency, announced Friday that it would convene an EU energy crisis summit “at the earliest possible date”.

Energy prices have soared in Europe as Russia has slashed natural gas supplies to the continent, with fears of more drastic cuts in the winter amid tensions between Moscow and the West over the war.

One-fifth of European electricity is generated by gas-fired power plants, so drops in supply inevitably lead to higher prices.

European gas prices on Friday reached 341 euros per MWh, near the all-time high of 345 euros it struck in March.

The war is not the only culprit in France.

The shutdown of several nuclear reactors due to corrosion issues has contributed to the French electricity price increase as power production has dramatically decreased in the country.

Only 24 of the 56 reactors operated by energy giant EDF were online on Thursday.

READ ALSO: France extends shutdown of four nuclear reactors amid corrosion problems

France, which traditionally exports electricity, is now an importer.

“Winter is going to be a tough period for all the countries in Europe,” Giovanni Sgaravatti, research assistant at the Bruegl think tank in Brussels, told AFP.

“Prices will stay high, possibly they can even go higher,” he said.

READ ALSO: Air-con, ties and lights: How Europe plans to save energy and get through winter without blackouts

Recession ‘probably unavoidable’

A Bruegel study found that European Union countries have allocated 236 billion euros from September 2021 to August 2022 to shield households and firms from rising energy prices, which began to increase as countries emerged from Covid restrictions and soared after the war.

In recent days and weeks, countries have announced energy-saving campaigns to encourage the public to reduce power consumption during the winter.

Germany announced Wednesday that the temperature of public administrative offices this winter would be capped at 19 degrees Celsius (66 degrees Fahrenheit) while hot water would be shut off.

The German measures also include a ban on heating private swimming pools from September and over the six months that the decree is in place.

Finland is encouraging its citizens to lower their thermostats, take shorter showers and spend less time in saunas, a national tradition.

French households are shielded by an energy price cap until December 31 for now.

Industries are also affected by the soaring energy prices.

Factories that produce ammonia — an ingredient to make fertiliser — announced the suspension of their operations in Poland, Italy, Hungary and Norway this week.

HSBC bank warned in a note that “recession is probably unavoidable” in the eurozone, with the economy shrinking in the fourth quarter and the first three months of 2023.

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UKRAINE

Fact check: How much help has Germany given Ukraine?

Germany’s support for Ukraine ranks second in the world in absolute numbers - but do these numbers paint an accurate picture?

Fact check: How much help has Germany given Ukraine?

Combining financial assistance, humanitarian aid, and weapon deliveries put together, the German government has sent €5.45 billion directly to Ukraine this year. 

It’s also channeled a further €7.15 billion to help fund EU initiatives for Ukraine, making for a combined total of €12.6 billion in German support. According to the Ukraine Support Tracker by the Institute for World Economy (IfW) in Kiel, that’s the second-highest out of any country since they started measuring in late January.

The USA comes in first at €47.8 billion, with France and the UK in third and fourth with around €7 billion each. When taken together, EU institutions and member states have provided €51.8 billion in assistance to Ukraine.

But study authors say that while the EU will roll out another €18 billion support package for Ukraine in 2023, the speed of German weapons deliveries could be greatly improved.

“With massive Russian air raids on civilian infrastructure, Ukraine urgently needs emergency power generators, transformers, and capacity to deal with the cold and long power outages. So far though, Germany has delivered only one out the five IRIS-T air defense systems it’s promised,” says study lead Christoph Trebesch with IfW.

So Germany’s one of Ukraine’s biggest supporters?

In terms of absolute numbers, it certainly is – but a closer look at the figures tells a slightly different story.

When measured against the weight of its economy – the fourth largest in the world – Germany’s contribution lags well behind other countries. Here, the Baltic states of Estonia, Latvia, and Lithuania, alongside Poland and Slovakia, make up Ukraine’s top five supporters relative to the size of their economies. On this measure, Germany doesn’t even make the top 15 countries.

“Germany has shown it can easily mobilise its own spending, whether that’s €100 billion for the ‘Zeitenwende’ of defense spending or the €200 billion in energy relief,” says Minna Alander, a specialist in German foreign policy who recently joined the Finnish Institute of International Affairs after more than ten years working in Berlin. “That’s a crushing comparison when you consider the money it’s given to Ukraine.”

READ ALSO: Zeitenwende: How war in Ukraine has sparked a historic shift in Germany

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