Spain has led a rebellion over soaring energy prices across Europe which analysts fear could endanger the continent’s economic recovery in the wake of the COVID-19 pandemic.

Madrid’s leftist coalition government last week approved a shock plan to divert $3.05 billion from utility companies to consumers over the next six months until gas prices are expected to stabilize.

Across the continent, governments are offering or considering providing state help to ease the pain felt by rocketing wholesale gas prices which increased electricity bills and some utilities companies have been forced out of business or seen their share prices fall.

Analysts at S&P Global Platts told Muhabarishaji that electricity prices have increased because of an increase in the price of natural gas as emissions heavy coal plants have been retired.

Utilities companies also face higher prices for carbon allowances required by the European Union’s emissions trading system, which is designed to cut greenhouse gases, the consultants added.

As the world economy recovered from the pandemic, demand for energy has also surged. Supply from Russia has slowed down and demand in Asia is high which has put pressure on energy international markets.

Europe is more vulnerable to energy price rises because it imports about 60% of its gas from Russia, Algeria and Libya which pushes up prices, compared with the U.S. which benefits from relatively low prices for gas due to its abundant domestic sources.

Italy is using money from the emissions permits granted by the EU to lower bills, the Associated Press reported, while France is sending checks for $117.8 to consumers who are already receiving help paying their utility bill.

Britain is considering offering state-backed loans to energy firms after companies asked for government help to cover the cost of taking on customers from energy companies that have gone bust, Reuters reported.

State intervention

Analysts said the Spanish government’s intervention in the energy market was being repeated across Europe as domestic economies came under increased pressure because of the rising cost of energy.

“What we are seeing is other governments getting involved to try to help the situation as happened in Spain. Situations differ in different countries but there is a growing need to ease the energy price situation while prices are so high,” Daniel Carralero, of the Critical Observatory of Energy, told Muhabarishaji.

In Spain, protests mounted against energy companies after electricity prices rose more than 200% in the past year and the issue has become politically sensitive for the leftist government which pledged to help those unable to pay energy bills.

Spain’s Environment minister Teresa Ribera told reporters last week that the country’s emergency measures would cut prices for consumers by 22% for the rest of 2021.

Energy companies will have to meet the higher costs while these measures are in place, but they will be reimbursed through higher tariffs later, meaning that the overall cost to them will be neutralized, the government said.

However, energy companies oppose the Spanish government’s plan.

The Association of Electric Power Companies, Aelec, which represents major utility companies including Iberdrola, Endesa, Viesgo and EDP, in a statement said the Spanish government’s measures “go against the efficiency of the market, European orthodoxy and create a climate of legal uncertainty”. It is considering taking legal action.

FILE - Iberdrola's power generating wind turbines are seen at dusk at the Moranchon wind farm in central Spain.

FILE – Iberdrola’s power generating wind turbines are seen at dusk at the Moranchon wind farm in central Spain.

The Spanish Nuclear Forum, which represents the nuclear sector and some utilities companies, warned the new measures would provoke a shutdown of the industry.

Analysts have been mixed in their reaction to Spain’s intervention in the energy market.

James Huckstepp, an analyst at S&P Global, said the Spanish government was temporarily tampering with the energy market.

“This is another way of subsidizing gas and power, making it artificially cheap for the end user and hence keeping demand higher than it might otherwise would be,” he told Muhabarishaji.

What remains to be seen is whether the surge in energy prices will dent hopes for a real economic recovery from the pandemic.

Jorge Sanz, a consultant at Nera Economic Consulting, told Muhabarishaji he hoped the effect on economic activity would be short-lived.

“If energy prices continue to rise then it will slow down the European recovery but if it is only a short-term shock then it will not have a major effect,” he said.

“The indications are that it will not last longer than this year. We have to hope.”

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