2023-10-18 22:00:00
Electricity is both a commodity and a public service. As a commodity, it has a price set by the market and we distinguish the wholesale market from the retail market. On the wholesale market, which is European due to cross-border interconnections, there is a price per megawatt hour (MWh) every hour (1 MWh = 103 kWh). On the retail market, suppliers (44 in France at the start of 2023) sell the electricity that they produce themselves for some, and which they buy on the wholesale market for most of them. These are so-called market offer (MO) contracts, generally annual, sometimes multi-year. But there are also prices set by public authorities for small customers, generally domestic and sometimes professional, who so wish. This regulated sales tariff (TRV) concerns exclusively customers whose subscribed power does not exceed 36 kVA (kW) and it is offered by the historic operator alone, in practice EDF and the ELDs (local distribution companies, this is i.e. municipal authorities).
If the electricity production and supply activities are indeed open to competition (there are several producers alongside EDF, such as Engie or TotalEnergies, and numerous suppliers, most of whom are not producers), this is not This is not the case for the transport and distribution of electricity, which are activities in a natural monopoly situation, which implies that access to these infrastructures must be regulated. A natural monopoly is an activity with a high proportion of fixed costs whose duplication would generate destructive competition. We cannot imagine duplicating an electricity distribution network in a city, whereas a single network allows you to benefit from economies of scale. Access tolls for these essential infrastructures are set by an independent regulatory commission (CRE, Energy Regulatory Commission). In France, RTE is responsible for transport and Enedis for distribution (two EDF subsidiaries). In practice, the tax-inclusive price of the kWh is made up of three elements which each represent approximately a third, but these proportions vary depending on the year: the cost of supply, network access tolls and taxes.
In 2022, wholesale electricity prices have exploded in Europe, mainly due to the dizzying rise in the price of natural gas, but not only that, and many observers do not understand the link that may exist between the two prices even though the share of gas used in electricity production is low in France (less than 10%). In 2022, the structure of French electricity production was as follows: nuclear (62.7%), hydraulic (11.1%), wind and solar (12.7%), gas (9.9%), coal, fuel oil and biomass (3.6%). It should be noted that in 2022 the share of nuclear electricity fell due to the shutdown of part of the nuclear fleet (it varied between 69 and 75% in previous years), and for the first time since 1980 France has become a net importer of electricity.
This article aims to provide answers to questions that many are asking themselves today:
1) Why is the price of electricity linked to the price of natural gas on the wholesale market?
2) Why does the regulated electricity sales price not follow the cost structure of the French electricity mix?
3) Why do alternative suppliers not immediately pass on the drop in electricity prices observed at the start of 2023 to the wholesale market?
4) What are the electricity market reform projects currently under debate in Europe?
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