Why Europeans are facing a 'heavy winter'

Europe 's households are facing much higher energy bills in winter due to rising global energy and gas prices, and consumer organizations have warned that the most vulnerable could be hit by energy poverty.

Why are the prices high?
Energy companies pay a wholesale price to buy gas and electricity, which they then sell to consumers. As in any market, it can increase or decrease, depending on supply and demand.

Prices typically rise when there is more demand for heating and people turn on the lights in their homes earlier in the winter, while prices are usually lower in the summer.

However, prices soared due to low gas reserves, high coal prices in the European Union, low deliveries of liquefied natural gas tankers due to higher demand from Asia, lower-than-usual gas supplies from Russia, low production renewable energy sources and power outages in infrastructure.

European gas reference prices in the Dutch TTF have risen more than 400% since January, while German and French energy reference contracts have more than doubled.

How long can this last?
The winter heating season in Europe typically starts in October and wholesale prices are not expected to fall significantly for the rest of this year, despite promises from some suppliers for more gas.

Most analysts expect prices to remain high next year.

Russia, Europe's largest gas supplier, said this week that licensing of the Nord Stream 2 submarine pipeline by Russia and Germany, which is awaiting the 'green light' from the German regulator, could lead to a reduction. Europe's rising gas prices.

However, Gazprom's ability to supply larger volumes in Europe may be limited this winter as it still fills its own domestic gas storage units and already produces quantities close to 10-year highs, Bank of America analysts said.

Last month, Norway's Equninor, Europe's second-largest supplier, said it would increase gas exports to Europe. Norway supplies just under a third of British gas.

Why are retail prices rising?
Many energy providers have reported increases in retail charges in recent months, passing on higher wholesale costs to consumers.

Wholesale costs can be a big part of the bill. In Britain, for example, at the total electricity and gas bill, wholesale costs can reach 40% of the total.

So when prices in the wholesale market rise significantly, providers can increase consumer retail charges.

Providers can buy energy in the wholesale market on the day of delivery, a day in advance and up to months or entire periods in advance.

They should try to predict when the price will be cheaper and buy the right quantity to meet the needs of their customers.

If providers do not buy enough energy, they may need to buy more at a price that may be higher, depending on market movements. This year, prices are going up all summer.

Can anyone intervene?
European Energy Commissioner Kadri Simpson has said she will soon present a plan to restructure the European gas market.

One of the ideas proposed by Spain is for the EU to buy gas jointly to take advantage of the single market power of 450 million consumers and create a strategic EU gas reserve, but there are not many details on how this will work.

Some national governments have announced measures to try to reduce the burden on households in the winter, such as subsidies, price caps or the return of energy business profits to consumers.

What can consumers do?
Due to the unregulated market, Britain offers many options with energy providers to consumers. Consumers are often encouraged to switch providers or programs at a lower cost.

Energy efficiency measures such as improved insulation, energy efficient lighting and smart meters are also a good suggestion, but they come at a cost. Reducing energy use is much easier in the summer months.

[Source: Reuters]