Britain goes big to ease energy shock, EU meets on Friday

Britain will cap consumer energy bills for two years and funnel billions to prop up power companies, its new leader Liz Truss said on Thursday in a bid to tackle an energy crisis that has Europe and Russia squaring off in a deepening economic war.

European governments are spending hundreds of billions of euros to help consumers and businesses cope with soaring energy bills as the price of gas, already high post the Covid pandemic, went stratospheric in the wake of Russia's invasion of Ukraine. 

"This is the moment to be bold, we are facing a global energy crisis, and there are no cost-free options," Truss told parliament, embarking on a major turnaround after ruling out "handouts" during her campaign to become prime minister. 

Truss's package, funded by government borrowing, could cost Britain about 150 billion pounds, rattling financial markets, where the pound is hovering around lows plumbed in 1985. 

Russia's invasion of Ukraine has exposed Europe's reliance on Russian gas with the bloc accusing Moscow of weaponising energy supplies in retaliation for Western sanctions imposed on it over the conflict. Russia blames those sanctions for causing the gas supply problems.

European Union energy ministers will meet on Friday to discuss the 27-nation bloc's response to the crisis, after a mixed initial response to a planned Russian gas price cap that risks provoking Moscow.

Just before the EU announced the price cap on Wednesday, Russian President Vladimir Putin threatened to sever all energy supplies if such limits were imposed, warning the West it would freeze like the wolf's tail in a famous Russian fairy tale.

GERMAN SUBSIDIES
As part of measures to shield its economy, Germany plans to subsidise a basic level of electricity usage for households and set aside cheaper power for small and medium-sized businesses, according to measures set out in an Economy Ministry paper seen by Reuters on Thursday.

Electricity distributors would be required to grant households a certain electricity quota at a discounted price per kilowatt hour, with a similar contingent planned for small and medium-sized enterprises, the paper said. 

With Russian deliveries in doubt, Europe has also been on the hunt for alternative sources of gas and delivery routes, with several countries pushing for more liquified natural gas (LNG) import terminals.

On Thursday, the Netherlands said the first ship to bring LNG had docked at a new terminal at the Dutch port of Eemshaven.

Capacity has been booked by Shell, France's Engie and CEZ of the Czech Republic.

Friday's EU ministerial meeting is not expected to approve any policies, but should make clear which options have strongest support.

The Baltic states are in favour of putting a price cap on Russian gas, as do countries that do not rely on Moscow for fuel, including Portugal, diplomats said. Others have warned that unity among EU members would be needed to make it happen.

Given the low volumes supplied to Europe - and thus, Moscow's lower gas revenues - some suggested a price cap would not accomplish much. "It wouldn't solve anything," one EU diplomat said.

UK SUBSIDIES
In Britain, Truss said average household energy bills would be held at around 2,500 pounds a year for two years, staving off a major price leap expected next month that threatened the finances of millions of households and businesses.

She said new methods of supply would also be introduced, with a moratorium on fracking being dropped and new oil and gas exploration licences issued for the North Sea.

Separately the Treasury and Bank of England will launch a 40 billion pound scheme to shield energy firms from a liquidity squeeze due to sky-high gas prices.

Other countries have set up similar schemes, with Denmark announcing on Thursday that it would provide 100 billion Danish crowns ($13.4 billion) in guarantees to energy firms.

Meanwhile, a Russian strategy document, seen by Reuters, showed that Putin's threat to completely cut off energy supplies could prove to be a double-edged sword for Russia. 

"A reduction in supplies to foreign consumers will lead to an imbalance in the system, when low prices on the domestic market are offset by export revenue," said the document, which was discussed at a closed meeting chaired by Prime Minister Mikhail Mishustin in Moscow on 30 August.