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Current Affairs

Gas and electricity prices rise in Europe

Date: 23 September 2021 Tags: Miscellaneous

Issue

European countries are witnessing rise in power prices in the last few months. This has created concerns in many people regarding the upcoming winters.

 

Background

The rise in power prices will ultimately lead to higher levels of inflation than already forecast. The price of gases is also expected to rise.

 

Details

  • In the winter seasons, more energy is needed to keep warming facilities running. The darkness forces them to use more lights than usual.

  • The governments are planning to help tide the people through the winter season. This is also done to keep prices in check.

 

Reason for rise

  • The cost of energy is dependent on various factors such as market situation and taxes. It is majorly controlled by demand and supply in the market.

  • Additional conditions are influenced by amount of energy imported, geopolitical situation, mix of energy used and also environmental protection costs.

  • The gas prices have increased due to a strong LNG demand from Asian countries. In addition, carbon charges and low stock has contributed to rise.

 

The cost scenario

  • For countries in European Union, the costs were highest for consumers in Germany in the second half of 2020, followed by those living in Denmark and Belgium.

  • Lowest prices were paid by consumers living in Bulgaria, Hungary and Estonia. The German consumer was paying almost three times the cost of Bulgarian consumer.

 

The supply scenario

  • Russia supplies about 40% of gas needs of European countries. Recently, Russian gas supply company Gazprom announced reduction in supply of natural gas to Europe due to fire incident.

  • The recently completed Nord Stream 2 and the earlier Nord Stream will carry 110 billion cubic metres of gas per year.

  • Nord Stream 2 will run from Ust-Luga in Russia to Greifswald in Germany. It will completely bypass Eastern-European countries.