(Bloomberg) — France will budget 16 billion euros ($16 billion) to limit power and gas price increases to 15% for households and small companies next year to ease the burden of the energy crisis on consumers.
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Prices would have risen by 120% without the limits, Prime Minister Elisabeth Borne said at a media conference in Paris Wednesday. The state will also continue handing over subsidies, with a one-time payment of up to 200 euros each going to 12 million households with the lowest incomes, she said.
The gross cost of the energy caps for 2023 will amount to 45 billion euros, Finance Minister Bruno Le Maire said as he spoke alongside the prime minister. The net cost for the government will be just 16 billion euros, as power producers that are benefiting from surging prices on the wholesale market will reimburse some of their windfall revenues under a mechanism that may be adopted more broadly across the Europe Union, he said.
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The French government was among the first in Europe to implement measures shielding consumers and companies from a surge in energy prices, when it froze gas bills in October 2021 and capped the increase in electricity bills at 4% last February. While the caps on energy prices proved effective in dampening inflation compared with the rest of the euro area, the cost to the state spiraled after Russia invaded Ukraine.
The cap on gas bills alone will cost 11 billion euros to the government next year as it will compensate suppliers of the fuel, the finance minister said. The electricity price cap will cost the budget five billion euros as solar, wind, hydro and other power producers will have to shoulder part of the burden and give back some of their windfall revenue, he said.
The lump sum for the poorest households will cost 1.8 billion euros, Le Maire said. France also will continue to protect companies from soaring energy bills. Businesses that are too big to benefit from the tariff caps may be given new aid, he said.
Europe must quickly review its support for large, energy-hungry companies like steel, aluminum and chemical makers because the current system of subsidies isn’t effective, the finance minister added.
With public finances already under pressure as the growth outlook deteriorates, the government aims to rein in support while avoiding further damage to the economy. President Emmanuel Macron must also navigate a difficult political backdrop after losing his outright majority in the National Assembly, whie opposition parties are mulling marches to demand higher wages.
A threat of rationing continues to hang over the country. Earlier Wednesday, French power-grid operator Reseau de Transport d’Electricite said it may have to issue alerts this winter to ask households, business and local governments to reduce consumption.
(Updates with finance minister’s comments on cost of energy price caps from third paragraph.)
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