UK weighs huge support package as Europe battles energy crisis

By Essi Lehto and Michael Shields

HELSINKI/ZURICH (Reuters) - - Britain's new prime minister was working on what looks set to be Europe's biggest energy crisis support package so far as countries scramble to protect households and businesses from soaring bills and shore up struggling suppliers.

Liz Truss, who took over from Boris Johnson on Tuesday, is planning to freeze household energy bills at the current level for this winter and next, paid for by government-backed loans to suppliers, the BBC reported, adding the scheme could cost 100-130 billion pounds ($116-151 billion).

The government is also working on help for businesses, but this is likely to be more complex and would be reviewed more frequently, the BBC said.

European governments are pushing through multibillion-euro packages to prevent utilities from collapsing and protecthouseholds amid soaring energy costs triggered mainly by the fallout from Russia's invasion of Ukraine.

Benchmark European gas prices have surged about 340% in ayear, and jumped as much as 35% on Monday after Russia'sstate-controlled Gazprom said it would indefinitelyextend a shutdown to the major Nord Stream 1 gas pipeline.

Europe has accused Russia of weaponising energy supplies inretaliation for Western sanctions imposed on Moscow over itsinvasion of Ukraine. Russia blames those sanctions for causingthe gas supply problems, which it puts down to pipeline faults.

Germany said on Sunday it would spend at least 65 billion euros on shielding customers and businesses from rocketing inflation, triggered mainly by higher energy costs.

Several countries are also providing billions in support to energy distributors exposed to wild swings in prices that are forcing them to cough up huge collateral for supplies.

Norwegian energy company Equinor has estimated these collateral payments, known as margin calls, amounted to at least 1.5 trillion euros ($1.5 trillion) in Europe, excluding Britain.

RECESSION FEARS

Finnish utility Fortum said on Tuesday it had signed a bridge financing arrangement with government investment company Solidium worth 2.35 billion euros to cover its collateral needs.

A Finnish government official told Reuters the support wasin addition to the 10 billion euros of liquidity guaranteesHelsinki announced for power companies on Sunday.

"The ongoing energy crisis in Europe is caused by Russia'sdecision to use energy as a weapon, and it is now also severelyaffecting Fortum and other Nordic power producers," Fortum ChiefExecutive Markus Rauramo said in a statement.

Swiss utility Axpo said it had sought and received a credit line of up to 4 billion Swiss francs ($4.1 billion) from the government to help its finances.

The Swiss government has lined up a 10 billion franc safetynet for power firms, but decided to allocate the funds to Axpoeven though the legislation is still before parliament.

The Financial Times also reported that Britain's largestenergy supplier, Centrica, was in talks with banks tosecure billions of pounds in extra credit. Centrica declined tocomment.

Many European power distributors have already collapsed andsome major generators could be at risk, hit by caps that limitthe price rises they can pass to consumers, or caught out byhedging bets.

Utilities often sell power in advance to secure a certainprice, but must maintain a "minimum margin" deposit in case ofdefault before they supply the power. This has raced higher withsurging energy prices, leaving firms struggling to find cash.

Soaring prices are forcing energy-hungry industries to scale back production, raising the chances of European economies plunging into recession.

Aluminium Dunkerque, France's biggest aluminium smelter, plans to reduce output by a fifth in response to mounting electricity prices, a source close to the matter told Reuters on Tuesday. The company was not immediately available to comment.

The benchmark front-month Dutch gas contract was down 9.6% at 222 euros per megawatt hour at 1215 GMT, butstill up about 5% from Friday's close.

($1 = 1.0085 euros)

(Additional reporting by william James, Susanna Twidale, Nora Buli, Caroline Pailliez and Gus Trompiz; Writing by Mark Potter; Editing by Jan Harvey and Carmel Crimmins)