Wien Energie recently shocked its customers with appalling electricity prices from September, now the next blow: the company needs a rescue package of no less than ten billion euros. But how did the historic financial disaster come about? And threaten a similar shock for other suppliers? Five answers to burning questions.
1.) Is it correct that the City of Vienna has given guarantees to Wien Energie in the past and if so, how much?
Yes. According to insiders, the city, which is 100 percent owner, has issued guarantees to Wien Energie several times. The city already helped with 700 million euros in July, and again on Monday for the same amount. The company was given a helping hand through an emergency decree, which can be issued by the mayor, so that it is not barred from trading on the stock exchange. In the coming period, another 2.6 billion euros will be added with external financing. This will provide the city with a total of four billion euros. Another six billion euros will come from the federal government.
2.) Why does Wien Energie need the six billion euros from the federal government?
Peter Hanke, alderman for Economic Affairs in Vienna, estimates the acute financing need at six billion euros. This is due to the huge increase in wholesale electricity prices on the power exchanges. Last Friday alone, it exploded from 700 euros to 1000 euros per megawatt hour. This only applies to energy that will actually flow to us in a few months, well into the coming year. However, like all other suppliers, Wien Energie uses the exchanges to ensure that it has sufficient electricity for the future at certain prices. Producing yourself is not enough.
You therefore buy electricity months to years in advance as a so-called futures transaction. The future seller asks for a deposit of approximately 25 percent. As long as the market price remains affordable and also reasonably stable, this is not a problem. But given the recent very high level plus extreme price jumps, the outstanding account is no longer adequately covered. The stock exchange therefore demands a hefty additional payment from the buyer and Wien Energie can no longer afford this despite the city’s financial injections.
3.) Did Wien Energie make a blunder and if so, to what extent?
Energy suppliers normally hedge against price changes through long-term forward transactions. That brings planning certainty. The costs for these long-term forward transactions are offset by the energy suppliers’ income from the sale of electricity and gas to the end customer. What happened next: Wien Energie acquired gas futures as usual. On the other hand, the company may have sold electricity futures. According to the insider, there could have been speculation. Due to the exorbitant price increase on the electricity market, Wien Energie now has to deposit in the billions of extra securities. Non-payment by Wien Energie would result in a very short-term exclusion from stock exchange trading.
It was “incomprehensible that the risk only came to light on Friday”, Walter Boltz, ex-head of E-Control and now adviser to Minister Gewessler, criticized in the “Krone” interview about the debacle at Wien Energie. This should not happen to a large company. There are formulas to calculate how high the advances should be and risk management is responsible for this. It is therefore obvious that people have speculated on the electricity exchange. The size of the financial need is striking: it amounts to twice the annual turnover of Wien Energie.
4.) Why was the city’s previous aid “hidden” until Sunday?
The guarantees already given by the city of Vienna are apparently based on emergency powers that the mayor can use without a decision of the commission. Why they have not been communicated is open.
5.) Are other providers threatened with a similar shock?
Such a shock in Vienna does not threaten in the other federal states, the respective state electricity companies assure. The reason is that they don’t seem to buy such large amounts through the exchanges, but also buy a lot directly from energy traders. However, they don’t have to pay large advances, say Kelag, Illwerke, Tiwag and Salzburg AG. That is why the existing resources are sufficient for the time being, it is said everywhere. However, all E-Werks are also concerned about possible further “extreme market conditions, the situation is very tense”, according to, for example, Energie AG Oberösterreich.
Source: Krone
I’m Wayne Wickman, a professional journalist and author for Today Times Live. My specialty is covering global news and current events, offering readers a unique perspective on the world’s most pressing issues. I’m passionate about storytelling and helping people stay informed on the goings-on of our planet.
