Prices can go up even more

European leaders met last Thursday where they discussed rising energy prices, in a debate that revolved not around diesel and gasoline prices, but about rising electricity costs. At the moment, there is no agreement to move forward with common European solutions. Each country will have to continue to take national action.

The national measures are still not very clear, and the Minister of the Environment, Matos Fernandez, has already ensured that “for the looming price of light, it is not necessary to reduce the value-added tax”.
The truth is that the Portuguese government and the Energy Services Regulatory Authority (ERSE) managed to turn off the light next year. In fact, ERSE talks about a 0.2% increase in January 2022, but this increase relates to “the average price for 2021, which includes the upward revision of the energy tariffs in July and October 2021”.

However, if the comparison is made only with invoices between October and December 2021, ERSE has already noted a -3.4% decrease compared to prices in effect at the end of 2021.

Good news for 993,000 families still in the organized market (20% of consumers, 5% of consumption). But those who should benefit the most are Duty Free customers who will be able to count on “a reduction of about -35%, on average, on the final bill.”

There’s more: The government itself has announced some price-cutting measures, such as eliminating the production cost surcharge on the Private Renewable System (PRE) and eliminating the CAE contract surcharge for the Pego coal-fired power plant.

ERSE’s proposal, for its president, is an “oxygen balloon.” In Pedro Verdelo’s opinion, “We have a situational problem in terms of prices in the wholesale market for electricity and natural gas. He said in Parliament that the electricity tariff proposal is an oxygen balloon to solve the problem starting in January, but we have to get there.

Ricardo Evangelista, Senior Analyst and CEO of ActivTrades Europe SA, has no doubts: “In the context of the trend of persistently high energy prices in wholesale markets, in my opinion it is positive for consumers that these prices are already up front. – defined and maintained even if there are new highs in the markets,” he told Nascer do SOL.

Henrique Tomé, an analyst at brokerage XTB, recalls that Pedro Verdelho said, “The increase in energy prices during the spring can be resolved, and in fact, there is such a possibility.” Therefore, the analyst says: “The seasonal peak is expected during this quarter, as temperatures begin to drop. However, as we approach spring, prices are expected to start a downward correction.”

The environment minister spoke about the matter again on Friday and emphasized: “Those who link the energy crisis to the climate are lying. Fuel prices are going up because oil is expensive. And if the electricity will not rise in Portugal, although gas is expensive, it is because 60% of it is from renewable sources,” he said. He added, “If we were much more advanced [na independência dos combustíveis fósseis]The energy crisis will not be much noticeable.”

European position

But the truth is that this escalation in electricity and natural gas prices is not only affecting Portugal, it is a common problem in Europe. The growth trend has already led the European Commission to propose a range of measures, such as vouchers, that could help the most disadvantaged.

It is a request received by several countries so far. A local source for Portugal said that Portugal is one of six member states of the European Union that has already put forward support measures to tackle the energy crisis, following directives from the European Commission to curb price escalation.

This Wednesday, the President of the European Commission spoke again on the subject and recalled that the European Union is highly dependent on gas imports, which is why she called for “real collective action” of the 27 member states.

“Let me start with two simple facts. Fact one: gas prices are cyclical, and are determined by global markets. But due to rising gas prices, many families are struggling to pay their bills and businesses are at risk of closing. Fact two: solar energy is now ten times cheaper to produce than it was 10 years ago, and even wind power – which is by definition more volatile – is now 50% cheaper than it was a decade ago,” said Ursula von der Leyen.

But are the measures proposed by the European Commission necessary? Ricardo Evangelista defends: “It seems to me that any intervention that helps mitigate the impact of higher energy prices would be welcome to those who would feel it most because of a less favorable socio-economic situation.”
For Henrik Tome, these initiatives are certainly “important and can help mitigate the increase in raw material prices”. But he leaves the caveat: “But its impact may be limited if prices continue to rise and there will have to be more violent intervention by entities.”

An example of one of the countries that has already started work is France, whose government has adopted a set of measures to protect consumers and businesses. But this “shield” means a loss of tax revenue. Asked whether this measure could be adopted by the Portuguese government, an XTB analyst said that it “can be adjusted according to Portuguese realities, if the government is willing to give up part of the tax revenue.” “The tax burden on fuel is still high, and the fact is that the government still has margins to be able to mitigate the recent increases in raw materials,” he adds.

portuguese position

Just this week, based on Eurostat data, ERSE released electricity and natural gas prices for the first half of the year. Portugal provided the eighth most valuable light in the European Union. In general, Portugal experienced a decrease in electricity prices in the domestic (-1.7%) and non-domestic (-1.8%) sectors, compared to the same period last year. However, it is important to keep in mind that the escalation of electricity prices has not yet been recorded at this time, when price records arrived only later.

In terms of gas, the country ranks seventh on the list. But there may be changes. “Rising energy prices have been felt uniformly across Europe, so it is unlikely that this factor, higher wholesale prices, alone will contribute to changes in this ranking,” explains Ricardo Evangelista.
In turn, Henrique Tomé recalls that “if inflationary pressures persist, this could lead to an adjustment in electricity prices due to an increase in raw materials”. On the other hand, he recognizes that “the state will be able to act to limit and mitigate these increases if it decides to adopt a more interventionist stance.”

And this winter?

As the governments of different countries decide what can and cannot be done, what could happen this winter, at a time when consumption is usually higher?

Ricardo Evangelista notes: “At the moment, the perspective is that natural gas prices will continue to rise, mainly due to the position of Russia, the main supplier to Europe, which is trying to gain political and geostrategic advantages by reducing supply.” The analyst explains that “the high price of natural gas, which is also due to the efforts made by many countries to use it as an alternative to other, more polluting energy sources, has side effects on the cost of fuels such as oil and coal, which for this reason have also become more expensive, as this has been reversed. more environmental position.” Therefore, he concludes: “With no end in sight to this dynamic, the trend towards higher energy costs is likely to continue.”

This view is shared by Henrique Tome when he states that “the latest forecasts issued by specialists point to a severe winter.” Thus, if these expectations are met, “the use of raw materials should increase and the excess demand could put more pressure on the prices of both natural gas and oil.” In other words: “Seasonally, this time of year tends to be supportive of natural gas prices, and therefore, there is a possibility that prices will rise even more.”