Europe's electricity industry body has urged governments to provide emergency credit to energy companies facing a liquidity squeeze from soaring collateral needs as power prices rise.

Emergency liquidity support is among the measures European Union ministers will discuss on Friday when they meet to consider a bloc-wide response to surging energy prices stoked by Russia reducing gas deliveries to the bloc.

Utilities sell some power in advance to secure a certain price, but must post a cash deposit with exchanges in case they default before the power is produced. Soaring power prices have meant firms must post bigger margin deposits, leaving some struggling to find the extra cash.

Eurelectric Secretary General Kristian Ruby said governments would need to prevent soaring cash needs from toppling firms.

"It puts an impossible liquidity strain on these companies to basically be able to, all of a sudden, next Monday, need to put up five times the cash," Ruby told Reuters.

"Governments need to be ready to supply a credit line for these companies," he said, adding that this should be done alongside measures to tackle the high gas prices that are driving up power costs.

Finland and Sweden have already offered liquidity guarantees to power companies, with Finland's economic affairs minister warning of a potential "Lehman Brothers" incident in the energy industry, referring to the 2008 collapse of what was then the fourth-largest U.S. investment bank.

"It really is a case of lenders of last resort - governments - having to step in to keep power market players above water," Ryan Alexander, research lead for European power markets at Aurora Energy Research, said of the squeeze caused by margin calls.

"Commercial banks typically provide this kind of facility, but are reaching their own exposure limits," Alexander added.

EU ministers will consider "immediate credit line support" for energy market participants facing very high margin calls, possibly through the European Central Bank, according to a preparatory document for Friday's meeting seen by Reuters.

Other measures up for discussion include cutting electricity demand this winter, a step Ruby said was necessary, and that could be done through government auctions where industries, companies and even individuals bid for compensation to cut energy use at certain times.

But he warned that other measures, including retail price caps and windfall profit levies, could "tear apart" power companies already under strain. (Reporting by Kate Abnett; Editing by Jan Harvey)