What is behind the surge in energy prices and what happens next? – Analysis

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Price increases are expected to put strong upward pressure on household energy bills and also present broader risks to economic activity, especially for sectors that are directly exposed to price increases. Many governments have taken steps to lower electricity bills, especially for vulnerable consumers.

In Europe, many businesses are likely to experience the dual impact of rising energy costs and a potential drop in consumer spending due to increased household energy spending. Rising electricity prices are already having an impact on the operations of electricity-intensive industries. And several companies have temporarily cut ammonia and fertilizer production, citing deteriorating margins due to sharply rising gas prices.

In China, rigid electricity tariffs have not kept pace with the sharp increase in coal prices. As a result, coal-fired power producers do not have enough coal on hand, and power outages have occurred in two-thirds of China’s provinces. Large energy-intensive industries – including steel, aluminum and cement – have been ordered to cut production. The effect on global supply chains is not yet clear. In the northeastern provinces of Heilongjiang, Jilin and Liaonin, even households experience power cuts, which is likely to have political implications.

In India, the economic recovery and the associated increase in energy demand are causing a shortage of coal. India’s domestic coal mining, which accounts for 80% of the country’s supply, has not been able to keep pace with demand, and rising international prices make imports unprofitable. Power plants that rely on imported coal have slowed down or even shut down, and some plants that rely on domestic coal are starting to run out. Despite government efforts to address the shortages, several Indian states have experienced severe power shortages in recent days, affecting both residential and industrial customers.

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