Wind power stations of German utility RWE, one of Europe's biggest electricity companies are pictured in front of RWE's brown coal fired power plants of Neurath near Jackerath, north-west of Cologne, Germany, March 18, 2022. REUTERS/Wolfgang Rattay

FRANKFURT, Sept 16 (Reuters) - Soaring power and gas prices have rocked energy companies across Europe, forcing utilities and traders to secure extra funds from governments and banks to cover margin call requirements. read more

Below is an outline of how they got to this point:

Europe has thousands of energy firms operating in a liberalised power and gas market intended to provide guaranteed competitive prices.

Signs of market strain started appearing quickly in 2022 with an unprecedented jump in European gas and power prices due to a confluence of factors, including high post-pandemic energy demand, cuts to Russian gas supply in the wake of the war in Ukraine and unusually low nuclear and hydropower generation.

To manage risk, several producers sell some of their power up to three years in advance on exchanges, but this also requires making security deposits to guarantee future deliveries in case of default.

These deposits - known as margin calls - have risen sharply in line with prices, leaving several companies badly exposed to bankruptcy as they are unable to find cash fast enough.

To avoid insolvencies, governments and regulators are now stepping in to help provide access to fresh money.

Wholesale and exchange-based commodity markets such as gas, power, coal and oil require down-payments from utilities to cover open liabilities, which rise when there are unusually wide price fluctuations.

Selling future output ahead necessitates paying buyers a safety deposit or margin in case the producer cannot deliver. Once the supply is received, the producer gets their money back.

Germany's benchmark power contract for 2023 surged to a record high of 1,050 euros ($1,064.81) a megawatt hour (MWh) in late August, 14 times the level a year ago.

Benchmark European gas prices have surged up to 340% in a year.

Norwegian energy group Equinor estimated that European companies need at least 1.5 trillion euros to cover the cost of their exposure to soaring gas and power prices, and that does not include Britain. read more

Europe's energy crisis has taken the biggest toll on companies needing fossil fuel raw materials and has been easier to navigate for those with more renewables in their portfolio.

Generally, those with deeper financial reserves are better protected than medium and smaller power generation operators or companies with large trading activities.

However, big players with large forward sales positions are feeling the strain, among them Finland’s Fortum (FORTUM.HE) and Swiss power company Axpo [RIC:RIC:AXPO.UL], both of which are now getting financial guarantees from their governments. read more

Britain's largest energy supplier Centrica (CNA.L) is reportedly seeking fresh money from banks, while Danish energy trader Danske Commodities has secured extra funds from parent company Equinor. read more

Meanwhile, Germany's biggest generator RWE has three syndicated loans totalling 8 billion euros to secure forward transactions and has a mixed portfolio that lessens exposure to costly gas.

In addition to margin calls from exchanges, the biggest importers and resellers of gas are struggling with the loss of cheap supply they expected from Russia and the need to buy replacement volumes on the spot market at elevated prices.

For example, Uniper (UN01.DE) - Germany's biggest importer of Russian gas - burned through its cash reserves sourcing gas on the expensive spot market after Moscow slashed flows to Germany, prompting a 15-billion-euro bail-out from Berlin agreed in July.

But that rescue package, which has grown to 19 billion euros, is no longer enough and Uniper says the government might have to take a controlling stake. read more

Uniper relied on long-term supply contracts with Gazprom (GAZP.MM) which are now in doubt, a challenge now also hitting SEFE - formerly known as Gazprom Germania - and EnBW (EBKG.DE) subsidiary VNG. read more

By contrast, rival RWE (RWEG.DE) said it was considering bearing its own losses and not reverting to Germany provisions to help operators via a gas levy charged to all consumers from Oct. 1.

The European Securities and Markets Authority (ESMA), the EU’s markets watchdog which regulates clearing houses that set margin levels, said it was actively considering what it could do to help with collateral, as well as looking at so-called circuit breakers or temporary halts on trading energy contracts if prices see huge moves.

The European Commission asked ESMA to present options for broadening the list of eligible collateral beyond cash, and the conditions under which bank guarantees could be accepted, by Sept. 22. read more

Margin is posted in the form of cash, but some industry officials would like to use non-cash alternatives such as letters of credit or guarantees from their banks, a common form of collateral in the U.S. physical oil market but one that is hard to use in Europe due to strict margining rules. read more

Our Standards: The Thomson Reuters Trust Principles.

Senior power correspondent for Germany with more than 30 years experience and focused on deregulated energy markets for power and gas, companies, networks, exchanges, renewables, policy, storage, future transport and hydrogen. A German native who has studied and worked in the United States and Britain.

The French government is now expected to launch its takeover of EDF by the end of September after a slight delay due to the complexity of clearing the offer price, three sources said.

Reuters, the news and media division of Thomson Reuters, is the world’s largest multimedia news provider, reaching billions of people worldwide every day. Reuters provides business, financial, national and international news to professionals via desktop terminals, the world's media organizations, industry events and directly to consumers.

Build the strongest argument relying on authoritative content, attorney-editor expertise, and industry defining technology.

The most comprehensive solution to manage all your complex and ever-expanding tax and compliance needs.

The industry leader for online information for tax, accounting and finance professionals.

Access unmatched financial data, news and content in a highly-customised workflow experience on desktop, web and mobile.

Browse an unrivalled portfolio of real-time and historical market data and insights from worldwide sources and experts.

Screen for heightened risk individual and entities globally to help uncover hidden risks in business relationships and human networks.

All quotes delayed a minimum of 15 minutes. See here for a complete list of exchanges and delays.