Greece faces energy crisis as prices spiral

3 mins read

Last year’s sharp rise in natural gas prices across Europe, which inevitably hit electricity prices, left a sour inheritance to Greek households and businesses.

As summer gave way to autumn, electricity prices rose across Europe, including Greece, driven by an unprecedented rise in gas prices.

With natgas widely used for power generation across the continent, the rise in prices was passed over to electricity.

However, by late November, skyrocketing wholesale electricity prices impacted retail electricity rates.

According to the Hellenic Statistical Authority (ELSTAT), retail electricity prices in December 2021 rose by 45% y-o-y, with some of the increase not passed to the consumer thanks to government subsidies.

Electricity bills for November and December went through the roof.

The additional monthly cost for a household that consumes 600 kilowatt-hours per month is estimated to be around €80 for November – and that’s after the state subsidy of €39.

The additional cost for December was even higher, at €100, and households are expected to receive inflated bills until at least April.

Currently, the government is following a step-by-step approach, which envisages dealing with the problem monthly.

Finance Minister Christos Staikouras has ruled out any reduction in value-added tax, as this would “derail the budget.”

Government spokesman Giannis Economou noted the Mitsotakis administration “is in constant contact with the market and is considering a series of interventions”.

So far, the government’s response in addressing consumer discontent and financial plight has been the introduction of across-the-board subsidies through stipends provided to electricity suppliers.

With special provisions made for low-earning and vulnerable consumers, since they are the worst hit, the inability to pay the electricity bill has led to the termination of the electricity supply.

The new year found the country in the grip of an unprecedented avalanche of high energy prices, which soon translated into indiscriminate increases in food and goods prices, which gave rise to strong inflationary pressures.

The latest ELSTAT figures show that inflation for January 2022, taking into account the EU harmonised index, rose to 5.5%, the highest in 20 or more years and is largely driven by high energy prices.

Eurostat estimates that Greek inflation rose by more than one percentage point in a single month, from 4.4% in December 2021.

If this is confirmed when ELSTAT publishes its data on February 15, the index will have recorded its highest reading in the last 11 years.

The last time it climbed so high was in September 2010, hitting 5.7%.

Greece is no longer one of the EU states with the smallest hikes, as in January, it had the seventh-highest consumer price index increase among 19 eurozone members. The average rate in the euro area was 5.1% last month.

Manageable levels

The government has already paid €1.7 bln in subsidies to maintain electricity and gas retail prices at manageable levels, with a further €2 bln earmarked until May.

This is the first time since Greece joined the euro that the government has resorted to wide-ranging energy subsidies to avoid social unrest and consumer price hikes for non-energy products.

Greece is not alone in Europe in subsidising consumer electricity and gas prices, Italy, Spain, and Portugal have introduced some kind of subsidy to help consumers.

Environment and Energy Minister Costas Skrekas reiterated the government’s commitment to providing financial support to consumers.

“Support to households will continue uninterrupted until there is a scaling down of high energy prices in international markets”, Skrekas said.

He added that “January electricity wholesale prices at €227.30/MWh were only slightly lower than in December”.

Wholesale electricity prices traded on the Athens Energy Exchange (ENEX) are now five times higher than a year ago.

The introduction of substantial energy subsidies raises a more fundamental question of market operation and the lack of adequate competition.

Some analysts point out that direct subsidies for specific mass consumer products, such as electricity and gas, are undermining the principles and rules of the EU’s internal market, which took more than 40 years to develop.

Offering widespread subsidies to selected groups of consumers and introducing a permanent subsidy-oriented support mechanism to counter high prices at the EU council level is undermining the free operation of competition-driven energy markets throughout Europe.

Resolving Europe’s high energy price issues has more to do with energy policy and wrong priorities, say analysts.

High costs

Industrial producer prices soared to a 21-year high last month, pointing to further retail price hikes in the weeks and months to come.

The continued rise of wholesale electricity rates entails high maintenance of energy costs, which makes it very difficult for manufacturers and retailers to absorb hikes and prevent them from reaching consumers.

On top of that, there is now the impact of the recent cold snap on agricultural produce, as hikes are already emerging in vegetable prices.

ELSTAT figures showed the industrial producer price index up 29.4% last month from December 2020.

Besides being the biggest yearly rise, the statistics show that December 2021 constitutes a historic high.

Such was the dramatic increase last month that compared to November 2021, industrial producer prices posted a monthly increase of 5.7%.

“While in the past, price lists sent by suppliers to supermarkets used to stay the same for as long as three years, now they may change up to three times a year,” said a spokesman from a major retailers association.

Costis Stambolis is a Financial Mirror correspondent based in Athens