BRUEGEL: National policies to shield consumers from rising energy prices
The current increase in wholesale energy prices in Europe has prompted governments to try to shield consumers from the direct impact of an energy crisis that is sweeping the Continent and the rising prices that are costing hundreds of billions of euros.
According to the EU, European governments have already spent a total of half a trillion euros on support and relief, and more will be spent as the crisis unfolds as the weather turns colder.
The economic damage to Europe’s economy has led energy-intensive industries to reduce production, and some are simply closing down. The crisis is being driven by soaring energy costs forcing governments to scramble to protect their most vulnerable citizens and businesses from unaffordable energy bills as they try to keep the lights on this winter.
Governments have come up with a variety of measures, including price caps, subsidies, tax deferral and VAT reduction and pay-outs, as well as the nationalisation of leading energy companies as they run into trouble.
Below is a truncated version of a paper by the European think-tank Bruegel, which specialises in economics, on measures taken in selected European countries to mitigate the effects of the energy crisis.
On 22 October 2021, the Bulgarian government announced an instrument to compensate companies with €55/MWh for two months. The €225mn required for the subsidies came from windfall profit tax on the nuclear power plant (NPP) of Kozloduy.
For households, on 16 December the new ruling coalition voted to freeze power and heating prices until the end of March. Towards the end of December 2021, Bulgarian Minister of Energy Alexander Nikolov announced a new measure, compensating businesses for 75% of the electricity price increase above a threshold of €95/MWh but not more than 30% of the actual average monthly price (the actual price then went to €219/MWh, the 30% ceiling was activated and the compensation was about €66/MWh).
On 20 January 2022, the formula was amended and maximum compensation, while staying put at 75% of the bill above €95/MWh, was raised to €128/MWh.
On 10 February, Bulgaria’s parliament passed a new budget, with a package to mitigate the economic consequences of the surge in electricity and gas prices, Bulgaria will spend €476mn to support businesses.
On 16 May, Bulgaria passed a series of aid packages amounting to €1.1bn targeted at the price of petrol and rising energy prices for consumers. It also froze energy prices for households using July 2021 as a threshold. The Bulgarian government will cover 80% of electricity prices above €102 per MWh for business in the new plan.
On 28 July 2022, at its last Council of Ministers, PM Kiril Petkov announced three energy measures that he labelled as the legacy of its mandate. The first is a proposal by the Ministry of Energy to conclude a contract for seven cargo ships with liquefied gas (exploiting LNG terminals in Greece and Turkey). The government will also adopt the new programme for compensating businesses due to the price of electricity, starting from July 1 to September 30. A ceiling of €128 will be implemented for end-users.
In late February, Croatian Prime Minister Andrej Plenković presented a €636mn package to mitigate the growth of energy prices. The package will contain the energy price increases at 9.6% for electricity and 20% for gas, and also supports the 90,000 most vulnerable energy customers.
Government measures include, among other things, a permanent reduction in the value added tax (VAT) rate for gas and heat to 13% from 25%. In addition, the rate for gas will temporarily fall to 5% from the beginning of April this year to the end of March 2023.
On 28 July, the Government of the Republic of Croatia adopted the guidelines for saving energy for the period from 1 August 2021 to 31 March 2023, which among other things propose room heating to a maximum of 21 degrees, cooling to 25 degrees, greater use of LED lighting and public transport, and cheaper electricity tariffs.
On 8 August the Croatian government announced a Decree containing a multi-part aid package for consumers and the utility company HEP. This package would cost €2.79bn in total. €797mn of this will be directed towards HEP. This is to support the utility in a time of crisis, as the cost of doing business has risen dramatically.
The remaining €2bn is dedicated to helping consumers through the energy crisis and the rising prices associated with it.
In November and December 2021, electricity and gas were exempted from value-added tax (VAT). The government also claimed that households will be exempted from energy fees if the electricity comes from renewables.
On 29 December 2021, the new coalition government approved the “Aid to households and entrepreneurs” act, to provide targeted assistance for households and entrepreneurs significantly affected by rising energy prices. Small and medium enterprises (SMEs) whose energy provider has failed and that have experienced increases of their energy bills of more than 100% are offered state-backed loans with a 0% interest rate to meet the costs of their operational expenses. This is provided under the Guarantee Programme 2015 to 2023 through the National Development Bank.
In early February 2022, Minister of Industry and Trade Jozef Síkela outlined a package to support companies facing a rise in energy prices. Energy-intensive industries get payments from the emission allowances or VAT.
In March, Minister of Labour and Social Affairs Marian Jurečka said that energy prices could be capped, or there could be some tax breaks, including VAT.
In June 2022 the government set aside €2.7bn to assist companies (€1.6bn) and households (€1.1bn) with their energy bills during the heating season.
The mechanism to pass this funding to consumers will be for the state to pay in full the renewables surcharge from October to December 2023. The Energy Act will be amended to introduce a savings tariff; wherein households can get a discount of around €650 as soon as this heating season starts. Additionally, households will receive €530 if they are reliant on electricity for everything in their household, like heating, lighting and cooking. These measures will cost the Czech government €1.1bn.
An additional €81mn has been allocated to high-energy businesses to prevent failures and closings. This amount will help recoup additional indirect costs from the crisis over the next year.
In early July, CEZ, the biggest utility company operating in the country, signed a credit agreement with the Ministry of Finance of the Czech Republic for up to €3bn, providing the necessary liquidity to the company.
On 28 July the government signed an agreement with CEZ for expanding the Dukovany NPP. If approved by the European Commission, the state will offer an interest free loan of €6bn to the company in exchange for a fixed cost for the electricity produced by the company.
Low-income households will benefit from discounted electricity prices between September 2021 and March 2022.
Network fees for all electricity consumers (both firms and households) were halved from October this year to March 2022.
The Minister of the Environment, Tõnis Mölder, announced that the total cost of the measures amounts to about €100mn.
At the end of 2021, Estonia decided to extend the energy price subsidy to low-income families to households with an income of less than €1,126 per month per first earner. According to the Estonian Minister of Public Administration, Jaak Aab, this means that around 380,000 households across Estonia will benefit. The estimated cost of this subsidy is approximately €79mn, to be covered by the proceeds from the sale of CO2 emission credits.
On 25 January, the Estonian government approved a cap on electricity (€0.12/KWh) and gas prices (€65/MWh) for households and the abolition of electricity distribution charges for businesses (previously only halved) in an effort to mitigate the negative effects of rising energy prices. The benefits will be valid from January to March.
In July the Association of Estonian Cities and Municipalities (ELVL) found there are considerable natural gas supply disruptions and urged the government to declare a gas-shortage emergency.
According to a statement by Prime Minister Kaja Kallas on September 14th, to bring down energy prices, many large energy firms may be permitted to close down for a short time. This did not constitute an official policy, and was disputed by many in her government and coalition. It does, however, hint at a unique approach to the energy crisis in Estonia, involving less fiscal spending and more free market machinations. The outcome remains to be seen.
On 15 September, the government announced plans for a one-off €100 payment to the 5.8mn households that already receive energy vouchers.
At the start of the year Prime Minister Jean Castex announced a cap on the price of gas until April 2022. Both measures were then strengthened on 21 October, augmenting the number of beneficiaries of the voucher (to everyone earning less than €2,000 per month net – around 38mn people), and extending the price cap to the end of 2022. The payouts to more than 38mn people would cost €3.8bn, paid mostly this year.
On 9 December 2021, the French government began discussions on changes to the formula used to compute tariffs of the country’s main electricity supplier Électricité de France (EDF). The new measure follows Prime Minister Castex’s promise to limit the increase in regulated tariffs to 4% for the whole of 2022. Regulated tariffs represent about 70% of the residential electricity retail market.
Moreover, in December 2021 there were plans to increase the volume of electricity that EDF is obliged to sell to its competitors by 50%, up from the March 2022 decision to raise it by 20% from 100 TWh to 120 TWh.
By 31 January 2022 the estimated cost for the state had been €8bn, while EDF warned its investors that it would take an estimated €8.4bn financial hit from the French energy price cap. From February 2022 to January 2023, the government also reduced the electricity tax from €22.50 per MWh to €1 for households and 50 cents for businesses.
According to Finance Minister Bruno Le Maire, the new measures announced since the Ukraine crisis bring the total cost of the government package to €25-26bn.
On July 6 the French government announced a €9.7bn public takeover bid to completely nationalise EDF, by acquiring the remaining 16% share of the company. The government has also announced plans to spend €50bn by 2030 to extend the lives of existing nuclear reactors at the top of President Emmanuel Macron’s plan to build six new ones by 2035 (for a further €50bn).
On July 28, French Minister for Energy Transition, Agnès Pannier-Runacher, announced regulatory measures to accelerate solar and wind deployment and respond to the risk of writing off 14 GW of renewable energy installations due to the rising costs of construction materials. The following month, on August 4, the French parliament passed another relief package, this one worth €20bn with a generalised set of subsidies instead of targeted support.
On 14 September 2022, the government announced that the tariff shield, already extended until December 2022 for gas, and until 1 February 2023 for electricity, will be renewed in 2023.
Electricity prices for German households are the highest in the European Union. Reuters indicates that some 4.2mn German households will see their electricity bills rise by an average 63.7% in 2022, while 3.6mn face gas bills 62.3% higher than in 2021 as suppliers pass on record wholesale costs.
In September the government reversed previous decisions not to interfere in energy prices and announced a reduction on the Erneuerbare-Energien-Gesetz (EEG) surcharge – a levy on the price of electricity – from 6.5 to 3.72 cents on the wholesale price per kWh of electricity. The measure, costing €3.3bn, became effective on 1 January 2022 and will be financed by the federal budget and higher CO2 pricing.
On 9 January 2022, the new coalition government announced targeted measures to help vulnerable households cover their heating bills in full. The state has also offered a €130mn package of one-time grants to low-income households.
A first relief package was passed on 24 February, which included an increase in the commuter allowance, a €135 lump-sum payment for students and vulnerable citizens, tax reductions on income tax, increased payments for poor children (an extra €20 per month per child), and a €100 subsidy to unemployed people.
On 24 March, Germany’s ruling coalition agreed on additional measures worth about €15bn, including a temporary reduction in fuel prices for three months through a tax cut (by 30 cents for gasoline and 14 cents for diesel).
At the end of April 2022, the Bundestag passed a law to eliminate the EEG surcharge altogether from July this year. The government claims that a typical family of four will benefit from that by around €300 per year compared to 2021.
In the months of April and May the federal government secured the trusteeship of Gazprom Germania, by transferring the previous trustee under foreign trade law into a trustee under the Energy Security Act. At the same time, the German government saved the company, which had faltered due to Russian sanctions, from insolvency with a loan of €9-10bn.
On the 19 June 2022, a new programme was rolled out by the government. Some of the measures covered by the package are: greater reliance on coal power plants in substitution to gas-fuelled ones, the kick-start of designing a new gas auction model that should encourage industrial gas consumers to save gas, lines of credit to gas storage companies, and renewed support to energy- and trade-intensive companies that are particularly affected by increases in natural gas and electricity prices (with a narrowly defined cost subsidy with no repayment obligations).
In July the German government agreed to provide a €17bn rescue package to bail out utility company Uniper. A few weeks later, on July 28, the government announced an energy levy in the range of 1.5 to 5 cents per kWh and it warned that utilities will be allowed to pass on the increase in energy costs to consumers starting in October. The measures could add as much as €1,000 per year to the living costs of households.
The German government announced on September 4 an additional €65bn to provide inflation relief and support for households struggling with energy prices. The package includes spending and support for an EU-wide profit cap on energy companies, a brake in the price for electricity used in basic consumption, and subsidies to electricity grids to dampen the rising prices.
On September 13 it was revealed that Germany plans to offer billions in loan guarantees to failing energy companies disrupted by the Russian supply cuts. The state bank for development, KfW, would be the main mechanism and overseer for this transfer of loan guarantees. The Ministry of Finance will use credit authorisation already established for the Corona relief programmes to fund these guarantees.
Also in early September, Uniper reported a €12bn loss from the energy shock. This prompted calls in the German government to buy a majority share, and others are calling for full nationalisation. Uniper’s parent company, Fortum, however, is Finnish and the German and Finnish governments have entered discussions on the fate of the company. It was reported September 16 that Germany was also considering nationalisation of other gas importing firms and oil refineries from Russia’s orbit.
Prices for households are regulated below cost and on 11 November 2021 the government announced that it would also put a price-ceiling of €1.30 per litre on petrol and diesel. Initially planned to last for three months, the cap was extended until July.
Márton Nagy, Minister for Economic Development, said that the government would raise around €2.06bn over the next two years from new windfall profits taxes. While covering many sectors of the economy, most of the revenues will come from energy sector companies (€760mn), with a large chunk to be collected from Hungarian oil and gas company MOL.
On July 13, the government declared a state of emergency and adopted a 7-point plan on energy security. The government intends to increase domestic natural gas production to 2.0bn cubic metres, as well as look for additional sources of gas. Budapest will ban exports of energy resources such as firewood and increase domestic production of lignite. In addition, one lignite-fired power plant in Matra will be reopened and the work of the Paks NPP near Budapest will be extended. From August 2022 Hungary will scrap caps on gas and electricity prices for high-usage households (those that consume more than the national average).
The Commission approved Hungary’s amendments to a company’s support scheme to increase the maximum amount of aid to €62,000 per company active in the agriculture sector, €75,000 per company active in fisheries and aquaculture sectors and €500,000 per company active in all other sectors. In addition, Hungary notified an overall budget increase of approximately €459mn. This will bring the total budget of the scheme to approximately €1.58bn.
On 27 September 2021, Italy approved a budget to offset the expected rise in retail power prices until the end of 2021.The funding was split into €2bn to eliminate general system charges in the electricity sector and €480mn to reduce general charges on gas bills. The system charges on electricity bills were to be offset with €700mn from the proceeds of CO2 auctions and €1.3bn from the National Fund of Energy and Environmental Services.
VAT on the use of natural gas will drop to 5% on supplies for “civil and industrial uses”. The measure applies from the last quarter of 2021 (October to December). VAT on gas bills is now at 10% and 22%, depending on consumption.
Italy is also set to strengthen the ‘social bonus’ on bills for families in economic difficulty and with serious illnesses, for which €450mn will be allocated. The facilities will be predetermined by the energy authority for the last quarter of 2021 to “minimise increases in supply costs”.
For around 6mn small businesses (with low-voltage users up to 16.5 kW) and around 29mn domestic customers, the rates relating to general system charges are set at zero from the last quarter of 2021.
New measures will likely be introduced early next year, bringing the total cost of containing energy prices for the government to around €5bn.
On 9 December 2021, the Italian government agreed to supplement the €2.8bn spending already planned for 2022 with an additional €1bn. On 21 January 2022, the Council of Ministers announced new measures (up €1.7bn) against high bills. On 19 March 2022, Italy approved a new €4.4bn package to enlarge the social bonus to 5.2mn households and to reduce the price of gasoline by 25 cents until the end of April. On 21 April 2022 the Senate approved €8bn in extra spending, €5.5bn of which is to counteract rising energy prices and the rest to help the most affected productive sectors of the economy. On 2 May PM Mario Draghi outlined a new package of measures worth €14bn to help families and business but also to speed up the deployment of renewable energy and regasification plants. The flag measure of the package is a €200 one-off bonus for 28mn workers and pensioners. By the end of June 2022, the government passed a new €3bn-worth decree to lower the increases in energy bills.
Towards the end of July, the government delineated a draft-bill named ‘Aiuti bis’ of the value of 15bn, with an extra €2bn of additional measures. On 13 September the Aiuti-bis bill was approved by the Senate for an overall budget allocation of €17bn (€2bn more than previously envisaged). On September 16, the government approved law decree Aiuti-ter. The new package has a value of €14bn (€6.2bn from the extra income). The package foresees a one-time bonus of €150 for those with incomes below €20,000 gross annually, including pensioners, employed, self-employed and seasonal workers, and will address an audience of 22mn people.
In Latvia, around 150,000 of the most vulnerable households, including those with a disabled member and large families, will receive between €15 and €20 per month from November until at least the end of 2022 to pay their electricity or gas bills.
The Ministry of Economics developed and on 30 November the Cabinet of Ministers supported a proposal to reduce the country’s mandatory procurement component to €7.55/MWh (from €17/MWh in 2021).
The government also rolled out a 50% reduction in fixed-term electricity distribution tariffs. The subsidy is allocated to the distribution system operator, compensating it for the reduced distribution tariffs it applies to end-users.
Residents over the age of 60 and disabled citizens have been receiving monthly subsidies of €20 per month from November 2021 until the end of March 2022. Households with children are getting €50 per child.
The previously proposed aid instrument, a time-limited reduction in value added tax, was not approved.
In January 2022, the Latvian government passed legislation to compensate gas consumers for rising energy costs. Anyone who consumes more than 250 cubic metres of gas annually will be compensated for the rise in gas prices over the January to April 2022 heating period. This is automatic and there is no need for application. The overall cost for the government is estimated to be €450mn.
On April 14, the Cabinet of Ministers announced an energy crisis in the supply of oil products, which is set to last until 31 December 2022. The State Energy Crisis Centre was appointed to be the institution responsible for the co-ordination of activities during this period, responsible for the release of safety reserves of petroleum products and to establish obligations for holders of petroleum product reserves in the Republic of Latvia. The new measures also impose a ban on exports of oil products outside Latvia.
On August 23, the government amended legislation to provide for the compensation of electricity system service costs for businesses from 10 October 2022 to 30 April 2023, measures to partially cover the increase in heat supply and heating costs for households, and partial compensation of energy resource prices for energy-intensive companies. The measure could cost the state approximately €123mn.
In addition to the planned support for entrepreneurs, amendments to the Law on Measures to Reduce the Extreme Increase in Energy Prices have also entered into force, which provides for a series of measures to partially cover the increase in heat supply and heating costs for households. The total amount of support for the measures included in the support package will be approximately €442mn. Moreover, about 250 energy-intensive manufacturing companies could receive support due to the rising prices of energy. It is expected that the average support will amount to €200,000 euros and that support for energy-intensive companies could cost the state about €50mn.
On 14 October 2021, the Lithuanian government announced that it will delay the final stages for liberalising the energy market, due to the possible disruptions caused by the spike in energy prices. Moreover, the increase in heating and gas prices for consumers will be spread over five years.
Finally, the extension of heating aid for the poorest 110,000 households is also under discussion.
The Lithuanian Parliament has also passed new legislation enabling more people to apply for heating subsidies to cover around 110,000 people. The government also planned to set a ceiling on electricity prices for consumers, spreading the increase over the next five years.
On 1 April 2022 the government launched a €2.26bn package to counter the effects of inflation and to strengthen energy independence.
To partly absorb the energy price shocks the government is compensating a share of gas and electricity prices paid by people by allocating €570mn. At the same time, businesses are offered not only gas and electricity price compensation solutions, with a budget of €120mn, but also targeted funds for the affected sectors of €142mn. Other measures target the elderly and citizens earning the minimum wage by increasing social benefits, and implementing heating compensations is foreseen in the government’s plan to increase personal income.
The plan also rolls out investments in energy independence by budgeting €1.12bn. €275mn will be allocated to a new renovation investment platform, while the grants for green renovation and modernisation of multi-apartment buildings amount to additional €277mn.
In addition, €46mn is earmarked for private charging infrastructure for electric vehicles in the courtyards of multi-apartment buildings, households and private companies. €60mn is planned to promote the purchase and installation of solar power stations, and additional €19mn − for the replacement of biomass and fossil fuel boilers by technologically advanced installations. In total, these measures will make up a share of €677mn. Additional investments in energy independence for businesses (€254mn) and for public projects (€193mn) are also detailed in the package.
On 22 October 2021, Climate Minister Michał Kurtyka submitted a bill aimed at shielding the most vulnerable 20% of households from the recent spike in energy prices. The measure will be implemented by extending for six months the number of beneficiaries of energy bills allowances and increasing their value.
At the end of November 2021, the government announced a package of tax breaks and contributions for the vulnerable worth more than €2bn.
On 11 January 2022, Polish Prime Minister Mateusz Morawiecki detailed his second “anti-inflation shield”: VAT on food, gas and fertilisers was cut to 0%, while that on petrol and diesel went to 8% and on heating to 5%, for six months. Financial aid measures to shield public administration entities were also rolled out.
An allowance to help households struggling with energy bills was strengthened, to provide a maximum of €106 per person per year based on income, type of heating and the number of people in the household (the largest of which can get up to €306 per year). The first instalment was paid out at the end of March 2022, while the second will be sent out in December 2022 and should cover 7mn households. €870mn was allocated for this.
The government has also rolled out the ‘MyHEAT programme’ with a budget of €130mn. This is based on subsidies for the purchase and installation of heat pumps in new homes with a higher energy standard. Subsidies account for 30%-45%. Eligible investment costs range from €1,500 to €4,500 (depending on the type of installed heat pump). Beneficiaries are owners or co-owners of new single-family houses.
The government is also working on a new package labelled “Putin-shield” to apply to those spheres of economic life that have suffered as a result of Russia’s invasion of Ukraine.
Starting on 1 February 2022, Poland lowered the tax rate on fuel for six months. The VAT rate for petrol and diesel was reduced from 23 to 8%. Gas and fertilisers were also completely exempt from VAT for the same period.
On 27 April, Secretary of State Piotr Naimski announced that the government was extending the tariff protection of the individual customers and the so-called sensitive recipients – e.g. hospitals or kindergartens – until 2027.
In May the government announced the expansion of the “Anti-Putin shield” to support borrowers.
On June 14, Climate Minister Anna Moskwa announced new subsidies for the coal consumed by households and housing co-operatives. The government would subsidise the sellers joining the programme from the difference between the price of buying and selling coal (up to €165/tonne). The subsidy was then changed to a one-off payment of PLN3,000 (€636) to help households cover the rising cost of coal amid surging energy prices In August, Prime Minister Morawiecki estimated the cost of lowering energy costs in Poland to be close to €10.6bn, with some of the burden falling on energy companies as well as taxpayers.
On September 13, the government announced plans to cap electricity prices in 2023 at this year's levels for the first 2,000 kWh consumed.
On 7 September 2021, the Romanian Parliament passed a law to shield vulnerable consumers from the energy price increases from 1 November 2021, with subsidies to be used for home-heating assistance, energy consumption, energy-efficient house equipment and the purchase of products and services improving the energy performance of buildings or connection to the energy network.
On 4 October 2021, Minister of Energy Virgil Popescu announced compensation for both electricity and gas bills. The measures were expected to last from 1 November 2021 to 31 March 2022 and affect approximately 6mn families, or 85% of the Romanian population. On 31 October 2021, the Romanian Parliament passed the bill to implement these measures and to levy a windfall tax on producers (on revenues exceeding €91/MWh) to finance them.
On 11 January 2022 the government announced a new protection scheme for household consumers with a monthly consumption of up to 300 kWh, including a VAT reduction to 5%, as well as compensation for the green certificate and the cogeneration bonus for consumption. The government is also developing a support scheme for natural gas.
On 20 March 2022, the Romanian government imposed a one-year ceiling on electricity and natural gas prices. Household customers who do not consume more than 100 kW per month will pay 14 cents per kilowatt, and if their consumption exceeds 300 kW, then they will be charged a maximum of 16 cents per kilowatt. Industrial customers will pay up to 20 cents per kilowatt. As for natural gas, its price for domestic consumers will be a maximum of 6 cents, and for industrial customers no more than 7 cents per kilowatt. The measure is expected to cost €2.9bn (€1.86 of which for the cap on electricity prices).
On 11 April 2022, the coalition government announced a series of grants and vouchers worth €3.5bn to help vulnerable Romanians and key industries cope with rising prices and supply shocks. Half of the funding will be covered by EU funds.
The package includes aid for small firms’ energy bills, grants to attract new investments and support current public works contracts, as well as aid for Romanian farmers and subsidies for fuel prices for transporters. Moreover, some 4.7mn pensioners and other low-income families will receive vouchers for basic food products worth €50 every two months.
On 1 September 2022 the Romanian government announced that it will maintain its cap on energy prices until the end of August 2023.
On September 9 the Commission approved the previously announced scheme to support companies of all sizes and sectors. The approved state aid has piled up to €4bn. With respect to limited amounts of aid in the form of direct grants, the aid will not exceed €62,000 and €75,000 per company active in the agriculture, fisheries and aquaculture sectors respectively, and €500,000 per company active in all other sectors. Support under the scheme will be granted no later than 31 December 2022.
In November 2021 the electricity tariff for the operation of the system (TPS) was significantly reduced. Based on the amendments to Act no. 309/2009 Coll., guaranteed purchase prices for more than 460 RES sources were adjusted and extended their support period by five years.
The Ministries of Economics and Finance decided to provide a state subsidy to the TPS operator of €40mn for the year 2022 to support the reduction of TPS for industrial consumers of electricity.
In November the government also reduced electricity distribution fee for the unregulated market for an approximated total cost of 0.1% of GDP (or €97mn). In early February 2022, Slovakian Minister of the Economy Richard Sulík proposed introducing a windfall profit tax on Slovenské elektrárny, the company running the two power plants in the country. The proposal caused Slovenské elektrárny to warn that it might be forced to file for bankruptcy, while stopping the process of launching the third unit of the NPP in Mochovce and the completion of unit four. Ownership of Slovenské elektrárny is split into three between the Ministry of the Economy and two foreign companies (the energy holding EPH Daniel Křetínský and Patrik Tkáč and the Italian energy company Enel).
In late February, the Slovakian government reached a deal with the company, which agreed to sell 6.15 TWh for selected customer groups at a price of €61.2/MWh for 2023 and 2024. The company claimed that “the total value of the aid will be around €85mn”.
Households should save a total of about €1bn, including VAT, on electricity bills by 2024. According to the Minister of Economy, the average savings per household will reach €500.
In May a new anti-inflation package worth €1bn was proposed by former Prime Minister and current Finance Minister Igor Matovič. The measures include a one-time €100 per child subsidy, bigger tax breaks for families with kids, and bigger child allowances. Assistance in the form of earlier payment of the 13th pension is one of the government's aid measures for the most vulnerable groups of residents affected by high inflation. The package would be partially financed by higher taxes, including a potential windfall tax on the main oil refinery. After being challenged as unconstitutional, in August the package seems set to become law.
On 14 September Minister of Labour, Social Affairs and Family Milan Krajniak said that the government will soon adopt laws that will cap the prices of electricity, gas and heat.
In late January 2022, the government provided a one-off energy subsidy to low-income citizens: around 621,000 people received a one-time energy voucher of €150 and large families received €200. The money for the payment will be drawn from the climate fund. From 1 February 2022 to the end of April, households were exempt from paying electricity bills and excise duties on electricity and fuel were lowered. Then-Prime Minister Janša explained that part of the costs for the mentioned measures would be covered from the profits of companies that have a network fee for electricity.
The government is also proposing a temporary exemption from the contribution for the provision of support for the production of electricity in high-efficiency cogeneration and from renewable energy sources for household customers and for low-voltage customers without power metering.
The government has also rolled out about €70mn in aid for the most affected economic sectors (notably agriculture).
In June, Slovenia saw the formation of a new centre-left government led by Prime Minister Robert Golob, who stated that the energy crisis would be his government’s priority. From 21 June, the prices of motor fuels at service stations outside the motorways were regulated again. From July, a more favourable tax treatment of the reimbursement of labour costs was also applied. In September, the government capped the prices of electricity and gas for one year for households and small business customers, and in the case of gas, also for other groups of protected customers (hospitals, medical institutions, homes for the elderly...). Until May 2023, a reduced VAT rate of 9.5% applied to the supply of electricity, natural gas, firewood and district heating. Regulation of heating oil prices is also announced. More initiatives, including €41mn in direct relief to the poorest households and €40mn in subsidies to assist businesses with high energy bills, have been announced for the upcoming weeks.
Under the direction of new Prime Minister Liz Truss, the government has drafted a plan to freeze annual household expenses on electricity and gas at €2.723. The shortfall for energy companies created by this law will be covered by the government, and it is estimated to cost the UK nearly a €1bn over the next year and a half.
The UK energy regulator Ofgem is considering offering loans to failing companies and becoming the “supplier of last resort”. However, there will be “no rewards for failure or mismanagement, and smaller energy firms will not be given bailouts” Business Secretary Kwasi Kwarteng said on 20 September.
Ofgem has raised the cap on the most widely used tariffs by 12-13% from October, after a previous increase in April, due to high wholesale costs. Another increase could be imposed in April 2023, bringing the price cap to GBP1,995, after a row of bankruptcies of energy firms occurred in the country.
The government is also bailing out key CO2 manufacturers to avoid disruptions in the supply chain of food and is also considering intervening in the national carbon market in December if prices remain high.
Finally, the government designed a GBP500mn fund to help the most vulnerable people pay their energy bills, particularly heating bills, but also to cover food and clothing expenses. This is in addition to the Warm Home Discount scheme by which medium and large energy suppliers support people who are living in fuel poverty or a fuel poverty risk group and the Winter Fuel Payment (an allowance between GBP100 and GBP300 to help households pay their heating bills).
In the last week of May, Ofgem said that it expects the energy price cap to rise by more than GBP800 to GBP2,800 in October – on top of the GBP700 rise in April.
On July 6 the government introduced to Parliament an Energy Security Bill aiming at driving GBP100bn of private sector investment into industries and supporting around 480,000 clean jobs by 2030.
Bruegel is a European think-tank. This article first appeared here.
Giovanni Sgaravatti Giovanni works at Bruegel as a research analyst. His fields of analysis span from productivity to energy and climate change.
Simone Tagliapietra Simone Tagliapietra is a Senior Fellow at Bruegel. He is also Adjunct Professor of Energy, Climate and Environmental Policy at the Università Cattolica del Sacro Cuore and at The Johns Hopkins University – School of Advanced International Studies (SAIS) Europe.
Georg Zachmann Georg Zachmann is a Senior Fellow at Bruegel, where he has worked since 2009 on energy and climate policy. His work focuses on regional and distributional impacts of decarbonisation, the analysis and design of carbon, gas and electricity markets, and EU energy and climate policies.