EU seeks $140B to cope with energy crisis as utilities teeter

Summary

• Russia has steadily cut gas supplies to Europe
• European government fork out billions help businesses
• EU's von der Leyen says aid so far 'will not be enough'

The European Union's executive outlined plans on Wednesday for raising more than 140 billion euros ($140 billion) to cope with an energy crisis that has increased the prospect of winter fuel rationing, corporate insolvencies and economic recession.

European gas prices have rocketed this year as Russia has reduced fuel exports to retaliate for Western sanctions over its invasion of Ukraine, leaving households struggling to pay energy bills and utilities grappling with a liquidity crunch.

European governments have responded with measures ranging from capping prices on consumer electricity and gas bills to offering credit and guarantees to prevent power providers from collapsing under the weight of collateral demands.

"EU Member States have already invested billions of euros to assist vulnerable households. But we know this will not be enough," European Commission President Ursula von der Leyen members of the European Parliament.

She unveiled plans to cap revenues from those electricity generators that have gained from surging power prices but do not rely on costly gas. She also outlined plans to force fossil fuel firms to share windfall profits from energy sales.

"In these times it is wrong to receive extraordinary record revenues and profits benefiting from war and on the back of our consumers," von der Leyen said.

She said the plan should raise more than 140 billion euros for the EU's 27 members to support households and businesses.

But her announcement did not include an earlier EU idea to cap Russian gas prices. That idea has divided member states, after Russia warned it could cut of all fuel supplies. Von der Leyen said the Commission was still discussing the idea.

Refilling reserves

Europe's benchmark gas price rose to about 208 euros per megawatt hour (MWh) on the comments, well below an August record above 343 euros but more than 200% up on a year ago.

Full details of the European Commissions proposals are due to be published at about 1230 GMT. A draft of the proposals, seen by Reuters, did not include broader gas price caps.

Europe has been racing to refill its storage facilities and has already met target to have them 80% full by November. But Russia's moves to cut supplies, including via the major Nord Stream 1 pipeline to Germany, makes the winter outlook uncertain. Moscow blames sanctions for hindering pipeline maintenance. European politicians say that is a pretext.

"Months of geopolitical wrangling have left the European gas market whiplashed, with volatile prices stemming from lack of supply, potential market intervention, and wider uncertainty," Rystad analyst Zongqiang Luo said.

Germany's local utilities industry group VKU warned about possible insolvencies, after several utilities in the EU and Britain have already collapsed as they have often been unable to pass on the full impact of gas price rises to consumers because of national price cap policies.

"We want to avoid insolvencies. I must warn that if individual companies are allowed to go bust, then it could become more difficult to finance the activities of all," VKU Managing Director Ingbert Liebing told Reuters, adding the group was in talks with the German government.

French grid operator RTE said there was no risk of a total winter blackout but did not rule out some power cuts at peak times, saying reducing demand was essential. 

'Last resort'

It said lowering national electricity consumption by 1% to 5% in most scenarios and up to 15% in an extreme scenario of gas shortage and very cold weather could help avert a power crunch.

"As a last resort, organised, temporary and rotating load shedding outages can be activated to avoid a widespread incident," RTE said.

European regulators are examining other relief measures.

"We also know that energy companies are facing severe problems with liquidity in electricity futures markets, risking the functioning of our energy system," von der Leyen said.

"We will work with market regulators to ease these problems by amending the rules on collateral - and by taking measures to limit intra-day price volatility."

Utilities often sell power in advance but must offer collateral to clearers in case of default before they supply the power. As gas prices have soared, so have collateral demands.

German utility Uniper, which has already secured 13 billion euros of credit lines from the state, most of which it has already drawn, said on Wednesday it was looking for alternative routes to keep it afloat, including possibly handing a bigger stake for the government. Under an existing bailout plan, the state will take 30%.

"Nationalisation is the only solution left, Uniper's capital resources are totally under water. Mathematically speaking, there is nothing else that could be done," a source close to the matter told Reuters.

Finland's Fortum, Uniper's largest stakeholder, also said talks with the German government continued. The economy ministry declined to comment on the talks.