LAHORE: European households should brace for an expensive winter owing to the continent’s deepening energy crisis that will likely send electricity and heating bills soaring.
Energy affordability in Europe is reaching a “tipping point” that could peak next year, with total spending on bills across the continent growing by 2 trillion euros ($2 trillion, Rs468 trillion), a Goldman Sachs research team said in a note published.
Many European households are already feeling the bite of a steadily worsening energy crisis, brought on by Russian natural gas producers intermittently pausing flows along the critical Nord Stream pipeline following Western sanctions this year.
Energy bills at some restaurants and coffee shops have already more than tripled this year, but with threats looming that natural gas supply from Russia could become even tighter as the Ukraine War rages on, analysts warn that Europe’s coming struggles are set to rival some of the worst energy crises on record.
“The market continues to underestimate the depth, the breadth, and the structural repercussions of the crisis,” the Goldman Sachs analysts wrote. “We believe these will be even deeper than the 1970s oil crisis.”
In 2023, the typical European household may spend as much as 500 euros (Rs117,000) monthly on energy bills, according to Goldman Sachs. This would represent a more than threefold increase over 2021 costs, when average energy bills came in at 160 euros (Rs37,439).
This scenario accounts for the likelihood that Russian gas flows to Europe will decrease, but not be shut off permanently. Should Russian flows to Europe zero out completely, however, monthly energy bills could reach as high as 600 euros (Rs140,000).
The Nord Stream pipeline linking Russia to Europe has been shut down since last week. The European Commission is encouraging member states to implement an “emergency wholesale price cap” for gas, the Financial Times reported, aimed at decoupling electricity prices from soaring gas prices.
According to Euronews, energy bills in the UK will leap by 80 per cent this winter, the country’s energy regulator Ofgem announced on Friday, as the Ukraine war continues to drive up prices.
The hike means the average household will pay €4,182 (Rs978,575) each year to heat and power their homes, leading NGOs to warn that millions will be plunged into poverty -- unless the government steps in.
UK households faced some of the highest prices in Europe -- nearly double in France. Only the Czech Republic was higher than the UK, which was followed by Italy and Estonia. Norway, which has large reserves of oil and gas, has the cheapest electricity bills, ahead of Switzerland and Malta in second and third, respectively.
Having recently struck new energy deals with Russia, households in Hungary are also paying some of the lowest rates for their electricity in Europe. Bulgaria, the Netherlands and Greece are at the unfortunate top spot, with households grappling with energy prices way above the European average.
Up until late 2021, the UK enjoyed cheaper gas than the EU average.
Germany, which is heavily reliant on Russian energy, has pledged to reduce taxation on natural gas from 19% to 7%, on top of measures aimed at cutting energy consumption.
German households will still pay almost €500 (Rs117,000) more a year for their gas due to a new levy -- to be imposed from October -- helping utility companies cover the cost of replacing Russian supplies.
The European Union is drafting emergency plans to intervene in its energy market, as pressure grows from member states to put a lid on the surging price of electricity. The EU’s 27 countries have disagreed in recent months over whether to intervene in energy markets, as reduced Russian gas deliveries to Europe have pushed up power costs.
EU countries have spent 280bn euros (Rs65.5 trillion) in the past year to shield consumers from energy costs, according to the think-tank Bruegel. European Commission chief Ursula von der Leyen has said that Brussels was preparing an intervention to separate power prices from the soaring cost of gas, as well as longer-term reforms to ensure electricity prices reflected cheaper renewable energy.
But with gas prices almost 12 times higher than at the start of 2021 and power prices setting new record highs almost daily, even the most sceptical states are softening. Meanwhile, the cost of a typical mortgage in the US has hit its highest level since the 2008 financial crisis as the country battles to rein in soaring prices. The average interest rate on a 30-year mortgage hit 6.02% this week, more than double what it was a year ago.
For families hoping to buy a home, the moves compound affordability problems. The rise comes as the US central bank aggressively raises rates in an effort to reduce the pressures driving up inflation across the economy. US consumer prices rose by 8.3% in the year to August, the fastest rate in almost 40 years, the Labor Department said this week.
The figure was higher than expected, raising expectations that the Federal Reserve will continue to raise interest rates aggressively. Mortgage rates have spiked in anticipation of the moves. “Rates continued to rise alongside hotter-than-expected inflation numbers this week, exceeding 6% for the first time since late 2008,” said Sam Khater, chief economist at Freddie Mac, the government-sponsored mortgage firm that released the interest rate data.
