InvestorQ : Is it true that the EU is asking the energy companies in Europe to foot energy bills on behalf of the consumers?
Aashna Tripathi made post

Is it true that the EU is asking the energy companies in Europe to foot energy bills on behalf of the consumers?

Aditi Sharma answered.
3 weeks ago

That is correct and there is a logic to the demand that the EU is making from the energy companies. In fact, the EU wants the energy companies to provide funds of €140 billion to alleviate the problems of households struggling with soaring energy bills. Here is the logic that the EU has given. When energy prices are rising rapidly, energy companies made tons of money from customers with steep bills. Now it was only logical that the same energy companies share some of these gains with the customer by offering price discounts.

However, EU officials have clarified that these were absolutely emergency measures taken up as a special case only. EU will use these funds to move rapidly to greener fuels so that its dependence on Russia for fossil fuels can be reduced. In a sense, Russia may have triggered this urgency in Europe to shift to greener fuels, something Putin may end up regretting later on. Now with Russia cutting supply lines, EU is convinced that that the era of cheap fossil fuels were over. Of course, the short term focus will be on the soaring consumer bills.

In terms of indicative numbers, the EU is likely to ask the fossil fuel extractors to give back 33% of taxable surplus profits for the year 2022. That would alleviate some of the pressure on the household budgets of Europeans. It is not just the onus on the businesses, but there is going to be pressure on the consumers too. EU members will sign a legally binding target to cut electricity use by 10% overall and 5% during peak hours. Demand reduction is the one and only way that the EU can handle Russia shutting cutting off supplies in the short term.

In addition, there will be some price caps on alternate energy companies too. For instance, low-carbon power generating avenues like wind, solar and nuclear power, will have their revenues capped at a level of €180 per KW hour; approximately 50% of current prices. The EU logic I that these companies enjoyed profits bonanza for too long and it was payback time. A small part of the funding will come from the tax on fossil fuel producers while bulk of the funding will come from the cap on low-carbon firms.