Energy Prices: How Governments Across Europe are Approaching the Crisis

Higher energy bills for consumers have quickly become a political issue not only in the U.K., but across Europe.

The crisis has varied causes: climate policies with utopian visions but economically and technologically unsound implementation; a lack of investment in the fossil fuel industry; too few long-term and fixed-price gas supply contracts; and ideologically-based discrimination
against nuclear technology.

The crisis is brought to a head by one statistic: 57.5 per cent of the primary energy consumption in Europe in 2020 was imported
and the main supplier was Russia. High import dependence makes the European economy vulnerable to large fluctuations of fossil fuel prices on global markets.

How are different governments around Europe trying to protect consumers from the spike in energy prices – and is the UK doing enough?

Spain

Renewable energy capacity has soared in Spain, but gas still accounts for around a quarter of the country's energy mix, which is why Spain was one of the countries most affected by the gas price rise.

The Spanish government has introduced some serious measures to mitigate the electricity price hikes: tax cuts including a reduction of VAT from 21% to 10%; and a reduction of electricity tax from 5.11% to 0.5%.

The government has increased the discount for vulnerable consumers from the current 25% to 60% and from 40% to 70% for the severely vulnerable – until 31 March 2022. 1.22 million households also benefit from the Thermal Social Allowance (TSA): the average allowance
has been €166 per household.

Poland

In Poland VAT on food, natural gas, and fertilizer products will be reduced to zero for six months from February 2022. In addition, the measure, which originally applied from January to March and reduced VAT on electricity from 23% to 5%, will be extended until
the end of July. This is in addition to the first anti-inflationary package, which also cut taxes on fuel, energy, and gas prices at the end of November 2021.

Hungary

The cost of energy consumption in Hungary has not increased, because of a pre-existing measure that enforced utility cost reduction dating back to 2013. The rationing scheme is designed to shift the risk of price changes from households to energy suppliers by
fixing tariffs. In effect, the program has reduced the share of total household expenditure spent on overheads, thus protecting household consumers from market price fluctuations.

The price of energy has continued to rise, so if residential prices had been set by suppliers on that basis, households would have faced a nearly fourfold increase in their bills, which would mean around 1.3 million people in energy poverty.

In November 2021, fuel prices in Hungary were officially capped. Until 15th May the Hungarian government has fixed the maximum price of 95 petrol and diesel at €1.34 per litre. The Hungarian government has also decided to introduce a price freeze for basic foodstuffs.
Accordingly, the prices of the affected products must be set so that they do not exceed those of October 15, 2021. The price freeze will apply from February 1 to May 1, 2022.

An international price comparison analysis published by the Hungarian Energy and Public Utility Regulatory Office (MEKH) in December 2021 compares the energy prices of the EU-27 capitals, plus Belgrade, and London. The consumers covered are average consumers
in the capital cities. The study shows that residential electricity and natural gas prices are the lowest in Budapest.

France

The French government has made no secret of its intention to avoid a return to the streets of the gilets jaunes "yellow vest movement", which began because of an earlier fuel
tax hike.

The French government announced a grandiose social programme, under which half the population would receive €100 in "inflation compensation" to offset the effects of the rise in energy prices.

France committed in September 2021 to capping an increase on regulated electricity costs at 4% in 2021 and to transfer the cost of the 44% energy price increase to suppliers to protect households. To help do this the government ordered the utility EDF (Électricité
de France), which is 80% state-owned, to sell nuclear power cheaper to rivals, to limit the rise in electricity prices throughout the marketplace.

United Kingdom

How does the UK compare?

The UK has a price cap on the most widely used household energy contracts, but energy prices will increase from April after a 54% increase in the price cap. Other measures include a £200 discount on electricity bills for all households from October 2022, to be
repaid over five years, and a £150 rebate on council tax bills for around 80% of households in England from April which would not need to be repaid. The government would also provide discretionary funding of £144 million to help people on low incomes who
either do not pay council tax or are in properties that will not receive the rebate.

The Bank of England expects the Consumer Price Index (CPI) to rise to 6% by April, while some analysts have forecast it could hit 7% unless the government decides to pump billions of pounds into the energy sector to cap spiralling heating costs.

Summary

According to a large-scale opinion poll conducted by the prestigious Hungarian thinktank Századvég, 43 percent of Europeans (including the UK, Norway and Switzerland) are worried that energy may become too expensive. It is noteworthy that Hungarians have the most confidence in the security of electricity supply: two-thirds of respondents are not at all or not very afraid of power outages.

These short-term interventions could mitigate the current situation but to avoid ongoing crises, European nations need to strengthen their energy sovereignty. There are three good options: invest in our existing (mostly fossil fuel) industry; enter into long-term
energy supply contracts to fix prices; or build our energy system more on self-sufficient sources like nuclear.

Until we reach a technological breakthrough in the storage of produced electricity, the plan of investing more and more only in weather-dependent renewables, like solar or wind simply will not work.