Sweden announces emergency support for energy producers and warns of financial strains
Sweden will provide emergency liquidity support to power producers after the government said it feared Russia’s decision to halt gas supplies to Europe could put the country’s financial system under severe strain.
Prime Minister Magdalena Andersson said the government would offer hundreds of billions of kroner in support to electricity producers.
She warned that, if left unchecked, rising collateral requirements for power producers could wash over the largest Nasdaq Clearing market in Stockholm and, in the worst case scenario, trigger a financial crisis.
Her comments came after Russia said on Friday night it would no longer supply gas via the Nordstream 1 pipeline. That announcement came after energy markets had closed for the weekend.
– Yesterday’s announcement not only risks leading to a “winter of war” but also threatens our financial stability, said Andersson, who stood next to Sweden’s financial regulator, central bank governor and finance minister at an emergency press conference on Saturday.
Sweden’s dramatic action underlined the seriousness of the situation facing Europe as it struggles to secure enough energy for the winter and tries to avoid the spread of distress among electricity producers.
Germany has already bailed out Uniper, one of the country’s largest utilities, and its majority owner, Finnish energy group Fortum, has asked the government in Helsinki for support.
Fortum warned on Monday that its collateral requirements had increased by €1bn to €5bn in the previous week, and that a default by a smaller player would cause “severe disruptions to the Nordic power system”.
Andersson said the support will apply to all Nordic and Baltic players, and would need approval by the Swedish parliament’s finance committee on Monday.
– We have to isolate this in one market so that it does not infect the financial sector, says Stefan Ingves, head of the Riksbanken, Sweden’s central bank.
Swedish authorities said they saw no immediate risk to financial stability, but were concerned that companies that are otherwise solvent could struggle to find enough liquidity, causing potential ripple effects.
“Russia is waging an energy war against Europe to divide us. But we will not let Putin succeed,” Andersson says.
Andersson’s comments come a week before the parliamentary elections in Sweden with polls pointing to a tight outcome. She said her centre-left government was ready to act, just as it did during the Covid-19 pandemic.
Erik Thedéen, head of Sweden’s Financial Supervisory Authority, said that electricity prices in Sweden had risen eleven times in the past year, leading to an increase in collateral requirements.
He added that without liquidity support, power producers could face bankruptcies and large losses that could lead to the collapse of the clearing house. “It is under very severe stress,” he said.