Electricity: why such a price increase despite opening up to competition?

Electricity: why such a price increase despite opening up to competition?

Between 2007, a symbolic date in France indicating the entitlement of all consumers to market tariffs, and by 2020, the average price per megawatt-hour (MWh) of electricity for households rose from € 124 to € 181 or € 57 per MWh. increase. The observation is therefore clear at first sight: with an increase of almost 50% since 2007, opening up to competition does not seem to meet its objective of reducing prices for consumers.

In addition, two finalists in the last presidential election, Emmanuel Macron and Marine Le Pen, openly debated it in the interim rounds, and if the remedies differed, they both agreed that the market energy system was inefficient and contributed to rising prices. This is also the conclusion of the Central Social and Economic Committee of the Electricité de France (EDF), which has just launched a petition to leave the European electricity market and return to public energy services. Left-wing leader Jean-Luc Mélenchon, who wants to become prime minister after parliamentary elections, is calling for a return to the national energy market.

However, is this price increase really linked to the liberalization of sectors that were supposed to stimulate competition and thus innovation, especially in the introduction of renewable energies (EnR), and to reduce prices? In fact, the observations seem subtler.

First, part of this increase can be explained by taxes (especially CSPE), which burdened the consumer account with 25% (ie € 31 / MWh) in 2007 and 34% in 2020 (ie € 61.50 / MWh). In other words, the tax increase alone explains EUR 31.50 / MWh from the observed increase in average prices by EUR 57 / MWh (ie 55.3% of the total).

Prices would rise if France isolated itself

Another part of the increase is based on the costs associated with the transport networks, which had to be reassessed several times to take into account the necessary investment in the maintenance as well as the modernization of these critical infrastructures. This modernization seems all the more necessary as electricity production is decentralized (especially through the use of renewable energy sources) and with the development of new uses. These electricity transmission rates (Turpe) thus increased from EUR 41 / MWh in 2007 to EUR 53.50 / MWh in 2020, ie 21.9% of the total increase observed.

Thus, a quick calculation allows us to infer that delivery costs, or in other words, market factors explain on average only 22.8% (100% – 55.3% – 21.9%) of the price increase observed over a given period, ie approximately 13 eur / MWh. Thus, for opponents of the European energy market, this remaining 22.8% would sound like an acknowledgment of failure and would justify a return to national markets.

However, according to projections by the RTE (National High-Voltage Transmission System Administrator), an isolated France would cost taxpayers several billion more a year between 2050 and 2060. To reduce our CO emissions and our dependence on fossil fuels, we have already closed and planned to close the equivalent of almost 10 gigawatts (GW) of thermal power plants. In addition, our aging nuclear power plants are experiencing long downtimes and monitoring periods that are hampering their full operation.

All this makes France an importer of electricity, especially to cover its peak consumption. In 2021, RTE reminds us that France will import 44 terawatt hours (TWH, one million MWh) of electricity (including 22.2 TWh from Germany and the Benelux). In 2007 it was “only” 27.5 TWh!

This can only mean two things: France is finding it increasingly difficult to meet its domestic energy needs and / or it is sometimes advantageous for it to import energy, especially when market prices are low.

EDF paradox

In the midst of this market dynamics, EDF is subject to a strange paradox. It should be understood that the main player in the electricity generation market in France is still obliged to pass on to its competitors a ceiling of 100 TWh / year of nuclear energy at the rate of “Arenh” (regulated access to historic nuclear energy) set at EUR 42 / MWh from 2012 . This provision, which commits around a quarter of EDF’s nuclear generation capacity, has made it possible to establish competition in the supply market, while electricity of nuclear origin is highly competitive, especially to cover “basic” needs. It is also in high demand today due to soaring market prices.

Arenh, which has not been revised since 2012, is to cover EDF’s nuclear power costs. However, this is no longer the case if we are to trust the Energy Regulatory Commission (CRE) and the incumbent, who estimate these production costs at € 48.36 / MWh and € 53 / MWh. In other words, EDF sells part of its nuclear production at a loss … which, from the point of view of the French taxpayer who participated in the creation of EDF’s fleet and is one of its shareholders, amounts to a double penalty. because it is also affected by rising prices.

However, it must not be forgotten that EDF is both a leader in electricity supply but also a very important exporter. And if they lose money per 100 TWh granted in the Arenh tariff, they will gain a share of the rest of their production, all the more so when market prices rise! In addition, its cost price remains very competitive, mainly due to revenues from nuclear and hydropower.

In the balance sheet, despite Arenh’s paradox, this situation allows him to generate significant profits that benefit the state shareholder … and, in one way or another, the taxpayer. For example, are energy shield measures not indirectly deducted from EDF’s profits?

Large funding for renewables

Finally, it must be borne in mind that opening up to competition has pursued objectives other than simply reducing prices. It was also a response to a number of problems identified in the mid-1990s. In this context, European energy sovereignty cannot do without a genuine coherent energy policy, which will make it possible both to influence markets and to plan for a gradual move away from fossil fuels. The method of financing renewable energies (EnR) and their costs associated with their integration into the network thus partly explain the increase in prices.

Indeed, private financing is carried out at a market rate of generally between 4% and 7%, where the state could benefit from much more favorable financing conditions. In other words, energy transformation is more expensive – all other things are the same – when it involves private rather than public investment. Sure, but it would be a little too quick to forget that European states, for some already burdened with very significant sovereign debt, have to make numerous budgetary arbitrations (subject to the restriction that they must normally comply with the requirements of the Stability and Growth Pact). However, they already subsidize renewables a lot, directly and indirectly, through purchasing obligations at a regulated price or additional rewards for the sole benefit of renewable energy producers. These support schemes for renewable energies would make it possible to subsidize the production of 79 TWh of renewable energies in France and in 2020 alone, up to 6.2 billion euros (according to the Ministry of Ecological Transformation).

Renewables also have the disadvantage of being intermittent, but above all decentralized and generated by more heterogeneous producers. This dispersion makes it difficult to control and balance the network and requires massive investment in adapting the lines to this new situation. For example, the Electricity Transmission Network (RTE), which transports electricity in France, plans to invest around € 33 billion by 2035 (including € 13 billion for renewable energy absorption only) and increase exponentially over this, depending on the share of renewable energy in France. energy mix.

These investments, in turn, pave the way for smarter energy management and the development of applications that go hand in hand, whether in terms of massive fleet electrification, é smart ’electricity networks (Smart grids) enabling the production / injection of energy that can be adjusted in real time, remote demand control… In short, optimization that will ultimately lead to better energy efficiency. And to continue to reduce our CO emissions by increasing the density of our renewable energy park. The future development of tariffs will therefore partly reflect our political decisions regarding the environment.

From reading this brief overview, we understand that we are, of course, far from promising to reduce price competition, but that all price increases do not stem from the imperfections of the liberalized market and that many of the benefits of building a European energy market cannot be completely overlooked. However, the scope for protecting consumers’ wallets and ensuring the energy transition remains limited.

If we do not bet on energy sobriety, do not see the emergence of radical innovations in energy production or do not hope for more favorable macro conditions, it does not seem that price growth can be stopped in the short term. And even if it were decided to reduce the marketing expenses of suppliers, EDF and its competitors, which have been appearing since 2007 …

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