If the explosion in French energy bills, both individuals and professionals, is cushioned by exceptional measures, Europe will have to completely rethink its energy market. A colossal challenge on which the differences of the 27 weigh. In the meantime, the rise in gas and electricity prices is not regarding to stop according to the experts.
Small businesses that see their energy bills explode, sometimes multiplied by ten, to such an extent that their managers decide to part with some of their employees in order to be able to pay them or even to temporarily cease their activity while waiting for better days. The inflation that affects the prices of gas and electricity is certainly lessened by state aid, but the situation remains particularly worrying.
“Four out of five SME / VSE managers questioned fear an impact of the rise in energy prices on their activity, including 22% who consider this impact to be strong”, indicated in September the barometer “Cash flow, investment and growth of SMEs / TPE” of the public investment bank (BPI France), which pointed out that “18% of managers fear that any restrictions on energy consumption will have a significant impact on their activity. The government load shedding plan, which might lead to power cuts in January, legitimately worries traders and craftsmen who hope for a return to normal, that is to say a return to energy prices like we knew them before 2021.
Several factors to explain the rise in prices
But finding such prices today seems illusory as the situation has changed and not only because of the war in Ukraine. The rise in energy prices had started a year before Russia invaded Ukraine on February 24, 2022, i.e. in 2021, the year of the post-Covid-19 economic recovery.
“The unprecedented rise in gas prices on the world markets (an increase of more than 170% in 2021) and in the EU (an increase of more than 150% between July 2021 and July 2022), extreme weather conditions, including summer heat waves across Europe, which increase energy demand for cooling and put additional pressure on electricity production, increased demand for liquefied natural gas, and consequently increase in its price, an increase in gas consumption in Asia due to the economic recovery and the recent shortage of electricity production from nuclear sources and hydroelectric energy, partly linked to climatic conditions “: so many reasons listed by the Council of Europe to explain the surge in gas prices… which automatically affects those of electricity.
Evolution of electricity prices in Europe
“Electricity cannot be stored, production adjusts at all times to demand so that the price of electricity is determined by the costs of the last power station called to ensure the balance between supply and demand. request. The strong recovery in activity in mid-2021 resulted in a peak in electricity demand satisfied by the commissioning of gas-fired power plants,” explains BPI France.
The price of electricity is also linked to the quantity of carbon produced by the power stations. “The more CO2 the electricity production emits, the more allowances the plant has to buy. When the price of the CO2 emission quota increases (80 euros per tonne in December 2021, i.e. multiplied by 2.4 since January 2021), that of electricity too”. CQFD.
Tariff shields…
To this situation was added this year the cessation of Russian gas imports and a reduced production of nuclear energy (due to the shutdown of reactors following the discovery of corrosion, and a maintenance schedule delayed by the health crisis): result, we obtain for France a sharp rise in the price of energy. From 50 euros/MWh at the start of 2021, the wholesale price rose to 222 euros/MWh in December 2021 and rose to more than 1,000 euros per MWh at the end of August!
Faced with this explosion of costs, the tariff shields put in place by several European countries – sometimes without consultation between them – cannot be a lasting solution because it is very costly for public finances. Initially, the European Commission proposed a plan (REPowerEU), to free the European Union from its dependence on Russian gas by 2027. It proposed exceptional measures such as reducing electricity consumption (sobriety ), cap the revenues of electricity producers, and set up a solidarity contribution from companies in the fossil fuel sector for one year.
… to a real long-term European strategy
But these emergency measures, in effect until December 31, 2023, do not constitute a long-term strategy. It is indeed the whole architecture of the European electricity market that will have to be reviewed. Commission President Ursula von der Leyen unveiled a new set of proposals in mid-October to counter energy price volatility and ensure EU energy security, but the decorrelation of gas and electricity prices electricity, while maintaining the objectives of ecological transition, is not unanimous among the 27 Member States… “The reason why it takes time is that there is not a single country that has an energy mix that looks like another,” said Laurence Boone, Secretary of State for Europe, at the end of October.
The search for a consensus and the complex construction of a new European energy deal, which take time, make some experts pessimistic, one of them believing that the winter of 2023-2024 “will probably be even harder”.
