Nordic utilities get €33bn in backstops as power markets crash


(Bloomberg) – The Swedish and Finnish governments have decided to create emergency safety nets to help utilities struggling to negotiate in unprecedentedly turbulent electricity markets.

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(Bloomberg) – The Swedish and Finnish governments have decided to create emergency safety nets to help utilities struggling to negotiate in unprecedentedly turbulent electricity markets.

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They are setting up liquidity facilities made up of loans and credit guarantees, worth a total of $33 billion, to prevent some power companies from technically defaulting as early as Monday due to increased requirements. of guarantee. The aim is to prevent Russia’s energy restrictions from triggering a financial crisis.

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“It has, in a way, the ingredients of a Lehman Brothers moment of the energy industry,” Finland’s Economy Minister Mika Lintila told a news conference in Helsinki, referring to the bank of investment whose name became synonymous with systemic risk after its collapse. triggered the global financial crisis in 2008.

Earlier on Sunday, Swedish Finance Minister Mikael Damberg warned that failure to act “could have contagion effects on the rest of the financial market”, even though “the problem is currently limited to energy producers”. Sweden is home to Nasdaq Clearing AB, which sits at the heart of the Nordic electricity market.

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Russia has limited gas supplies to the European Union, contributing to soaring prices and concerns about shortages in the colder winter months ahead. Already at four times the level of a year ago, natural gas prices are expected to jump on Monday after Russia announced that its Nord Stream 1 gas pipeline to Germany would remain closed. This puts additional pressure on industries and households – and on policy makers to act.

“This winter, Russia is preparing for a decisive energy attack against all Europeans,” Ukrainian President Volodymyr Zelenskiy said on Saturday. “He wants to weaken and intimidate all of Europe, every state. Where Russia cannot do so by force of conventional arms, it does so by force of energy weapons.

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Sweden is providing up to 250 billion crowns ($23 billion) in credit guarantees, while Finland’s program worth 10 billion euros ($10 billion) includes loans and guarantees. The parliaments of both countries are expected to start processing the motions on Monday.

Soaring energy prices in Europe have made it more expensive for utilities to buy and sell electricity, due to the guarantees required to secure the transactions. Fortum Oyj said on Aug. 29 that its collateral rose by €1 billion in a week to €5 billion, excluding funds deposited by its German subsidiary Uniper SE.

The utility welcomed the government’s action and said its liquidity support discussions were continuing with the Finnish state, its majority shareholder.

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“It is good that the Finnish and Swedish governments are looking to quickly stabilize the Nordic electricity markets and are helping energy companies in this difficult time,” the Espoo, Finland-based company said in a statement on Sunday. .

Fortum had turned to the Finnish state for help to secure its liquidity needs until its covered electricity contracts were delivered and the guarantees were released. Uniper, which has also requested additional cash assistance, is not eligible for funds from the Finnish plan. The German company was bailed out just weeks ago after a massive shortfall in natural gas deliveries from Russia led to huge losses.

The European Energy Exchange AG has also called for more government support for traders to secure their purchases and sales, as billions of euros pledged for trades undermine liquidity and make prices even more volatile.

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While Finland’s scheme has no set limits per company, the European Commission can impose such restrictions, the government said.

Swedish guarantees will be provided by the National Debt Office and are aimed primarily at Swedish companies, although entities based in other Nordic and Baltic countries will be able to access them for the first two weeks, or until their governments provide support. The move comes a week before Sweden’s elections, in which a constellation of conservative and liberal parties are seeking to overthrow the minority Social Democrat cabinet, led by Prime Minister Magdalena Andersson.

The European Union is also preparing to enter the energy market to mitigate soaring electricity costs. The bloc aims to limit prices in the short term and in the longer term to change the way energy is priced by cutting the link between gas and electricity, blunting the weapon that Russia wields.

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