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Why electricity prices depend on gas prices and other questions about future bills

The wholesale worth of electricity in France reached 1,000 euros per megawatt hour (MWh) on the finish of August. Faced with this devastating outbreak for family incomes and nationwide economies, European vitality ministers met urgently in Brussels on Friday, September 9 to discover a resolution.

Why is the wholesale worth growing a lot?

An accumulation of things has led to an explosion in electricity prices, which impacts the entire of Europe and doesn’t spare France.

  • Economic and industrial restoration. Demand, linked to the top of the financial disaster resulting from Covid-19, has been driving up prices for the reason that finish of 2021.
  • War in Ukraine. A good portion of electricity in Europe is generated from pure gas, leading to worth convergence between gas and electricity. However, the worth of the primary rose with the European ban on Russian gas, adopted by the shutdown of the Nord Stream 1 gas pipeline, indefinitely, with an extension in early September (+ 30%).
  • Status of the nuclear fleet in France. Between meteorological circumstances – drought has affected rivers used to chill the reactors – and ageing infrastructure, which requires upkeep, a big a part of the nuclear fleet has been shut down. Thus, at 1er As of September, solely twenty-four of EDF’s 56 nuclear reactors have been operational. However, France, usually self-sufficient and even an exporter, is compelled to provide itself on the European electricity market, contributing to cost tensions.
Read extra: The article is reserved for our subscribers In Europe, prices panic within the electricity market

Why is the worth of electricity so unstable?

Since the Nineties, the European Union (EU) has step by step opened nationwide electricity markets to competitors with a purpose to harmonize and liberalize the European market and to raised interconnect it. The European electricity transmission community now ensures safety of provide and alternate between thirty-five international locations.

This market relies on a European inventory alternate, Epex Spot SE, the place MWh is traded, the worth of which varies by nation relying on provide and demand. It varieties a speculative area that brings collectively producers, suppliers and merchants, who purchase and promote electricity (nuclear, renewable or fossil) for rapid or delayed supply.

However, on this wholesale market, prices are set not based on the typical value of electricity manufacturing in Europe, however primarily based on the “marginal” manufacturing value of the final MWh injected into the community. For low demand, nuclear or renewable installations are enough, however when demand is excessive, thermal energy vegetation are used, and the price of electricity is then listed to the worth of gas (or coal). Added to it is a tax on CO emissions2Within the framework of the European carbon market.

Read the column: The article is reserved for our subscribers Electricity: “We must free ourselves from wholesale prices, that are very unstable and unregulated”

Can the European Union act on prices?

Yes. The President of the European Commission, Ursula von der Leyen, introduced methods to scale back vitality bills on Wednesday:

  • Price restrictions on Russian gas imported by the EU, which can restrict the excessive volatility of prices per megawatt on the wholesale market, listed to gas prices;
  • capping MWh produced at 200 euros excluding gas-fired energy vegetation to de-index the sale worth of electricity from pure gas;
  • Establishing a solidarity contribution for fossil gasoline corporations that earn earnings;
  • redistribution “Unexpected Benefits” Power producers, which embody nuclear energy vegetation, wind energy, solar energy or hydroelectric dams and “Make enormous earnings that do not replicate their manufacturing prices”To assist households and companies “susceptible” ;
  • Allows Member States to make use of this monetary loss to assist shoppers, but in addition to spend money on clear vitality sources;
  • Finally, fee objectives “Smart Demand Reduction”with “A compelling goal to scale back electricity consumption throughout peak hours”.
Read the editorial: The Energy Crisis: Reshaping the European Electricity Market

Do the French pay for electricity at European prices?

Not fully, regardless of a really clear enhance. ” A portion of the kilowatt-hours is bought within the wholesale market at a “increased worth”, AFP Patrice Geoffron, professor of economics at Paris Dauphine-PSL University and director of the Center for Geopolitics of Energy and Raw Materials. the remaining” Consistent with nuclear era, the price of which is under the wholesale worth stage”. Prices will, nevertheless, be rather more manageable as soon as the nuclear fleet is ready to function at full capability.

Read extra: The article is reserved for our subscribers Electricity: New blow to EDF’s nuclear fleet

In addition, French shopper bills are usually not listed on to wholesale market prices, however to tariffs regulated by the state. But he’s protecting. In September 2021, Jean Castex’s authorities thus applied a “tariff protect” limiting downstream worth will increase to 4%.

Read extra: The article is reserved for our subscribers Tariff shields have halved the impression of rising electricity prices in France

It goes by a twin course of:

  • A tax discount. The home tax on ultimate consumption of electricity (TICFE) was diminished from 22.50 euros per megawatt to 50 cents on 1er February to restrict managed tariff will increase.
  • Nuclear energy reorientation. The state compelled EDF to extend by 20%, i.e. from 100 to 120 TWh in 2022, the quantity of its nuclear era offered at decrease prices to its opponents by regulated entry to historic nuclear energy. As compensation, the bill worth of this saved electricity has elevated from 42 to 46.20 euros per megawatt.

By comparability, regulated prices within the UK are set to extend by 80% in 1er October.

In France, the disaster could fade extra rapidly, however relying on unsure components. “Our gas reserves are fairly good. If we are able to restart nuclear energy, if climate circumstances are adequate for wind energy and if states keep tariff shields, that can restrict the harm, nevertheless it’s arduous to foretell.” Delays Carin Sebi, an economist on the Grenoble School of Management

Will the tariff protect be renewed in 2023?

Yes, however not essentially similar. Ministerial Representative for Public Accounts, Gabriel Atal, introduced the beginning of his renewed faculty 12 months on 1er Its exact outlines will probably be mentioned throughout the Finance Bill 2023 from February to September finish. “Energy prices will enhance in early 2023, however will stay and be cheap in comparison with this worst case situation,” In the dedication economic system minister, Bruno Le Maire the echo.

At stake, the query of value to the state. According to Barsi, the electricity worth cap measures prices, 10.6 billion euros to the state for 2022 – and in whole, gas worth freezes and reductions on the pump on gasoline, equal to 24 billion euros or 1% of GDP. . Would or not it’s sustainable for public funds to droop such a tool in the identical means?

Another issue: guaranteeing social justice. According to a current evaluation by INSEE, the tariff protect has failed to scale back the hole between social courses Overall, this has made it potential to halve the rise in vitality prices, however essentially the most modest households are extra strongly affected by the impression of worth will increase. inside the parisianThe Prime Minister, Elizabeth Bourne, promised “Specific provisions to assist essentially the most susceptible. »

As a shopper, how will you scale back your vitality invoice?

Different options exist at totally different scales, timescales and prices for these searching for to mitigate the impression of worth will increase.

Adopt correct posture. The rising value of electricity particularly impacts households that use it as a way of heating, and the invoice spikes with winter temperatures that take a toll. “The solely resolution is to alter the conduct, and for instance go from 22 ° C to twenty ° C ambient temperature, figuring out that the advice is nineteen ° C”, explains Karin Sebi, economist and vitality sector professional on the Grenoble School of Management (GEM). Lowering the thermostat by 1°C saves 7% on your heating invoice. Finally, beneficial financial savings may be made by solely activating your water heater for shorter time slots and decreasing using some energy-intensive home equipment akin to garments dryers.

Equip your self nicely. Major family home equipment (fridges, washing machines, dryers, and many others.) devour most of their vitality throughout use, therefore the curiosity in changing older fashions with newer ones. “We should select essentially the most economical, even when we do not all the time get monetary savings like CO2 », acknowledges Sophie Attali, Vice-President of eco-responsible buying information “TopTen”. Other good selections: Ban halogen bulbs and aquariums, go for a fridge with no freezer compartment or a small water heater.

make investments Doors, home windows, partitions… “You need to isolate first. It is nonsense to attempt to warmth rooms that don’t retain warmth.”, remembers Sophie Attali. Many monetary aids exist for thermal renovations. Another resolution: select a extra environment friendly heating system, akin to a warmth pump, which is inexpensive to make use of and extra worthwhile in the long term.

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