[Article mis à jour le 09/03/2023 à 10:30 avec la position du ministère de l’Economie et des Finances]
For more than a year now, the government has promised to review ” from top to bottom » the European electricity market. And for good reason, its operation proves to be ” totally aberrant “, had castigated in September 2021 the Minister of the Economy, Bruno Le Maire. Since then, the mantra has not changed: the urgency is to overcome the ” coupling between the price of gas and electricity to which this system leads, the ministers repeat at will during public declarations. Which would be responsible for aggravating the current crisis, by artificially inflating prices in France due to ” obsolete rules “, always according to Bercy.
Once the culprit had been designated, it remained to be seen which reform to support in Brussels to overcome it. A few months ago, the Energy Regulatory Commission (CRE, an independent administrative authority) thus mandated eleven of the international experts considered to be the most specialized on the subject, to submit a report to it by first quarter of 2023. It is now done, since its president, Emmanuelle Wargon, indicated on Tuesday that she had received it. Result: if the specialists remain cautious regarding the possible adjustments to be introduced, they are very clear on another aspect: that of not calling into question the main mechanism of the market, which results in linking the prices of gas and electricity .
“What emerges is that we must not throw the baby out with the bathwater”, slips to La Tribune one of the experts who requested anonymity.
No modification of the basic architecture of the market
Indeed, the group made up of academics from among others Harvard, Cambridge, Paris-Dauphine, Toulouse Business School, the University of Milan or the Rurh University calls, as a champion of liberalisation, to ” let short-term market mechanisms rank different technologies according to their economic efficiency and market responsiveness “. In other words, they prescribe not to go back to the fundamentals of this system, which amounts to aligning all electricity prices for the next day with the marginal costs of the last plant called in Europe (generally a gas plant) . And this, in order to give a clear hour-by-hour signal of the means of production mobilized to meet demand, which varies at every moment of the day.
“Connecting gas and electricity prices is the logic of this market. Imagine that I have three plants on a European scale, the operating costs of which are respectively 10, 20 and 50 euros per MWh. Concretely, if I need to call the three at a time T, the final price will be aligned with 50 euros. In other words, the first two will benefit from an infra-marginal rent, that is to say a “profit”, significant, and the market price will be high”, explained a few months ago to La Tribune Jacques Percebois, energy economist and contributor to the report.
« There are temptations regarding changing these auction rules. For us it is clearly ”no” “, thus clarified Wednesday morning during a press conference organized at the CRE Professor Anna Creti (Paris-Dauphine), one of the eleven mandated experts.
“We all consider that this mechanism responds perfectly to its mission, which is to define the marginal producer who costs the least at time T,” added Frédéric Gonand, coordinator of the group of experts.
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The discarded single buyer model
In reality, these findings are not surprising. Because from the launch of this international academic group, during a symposium organized on December 15, 2022 and introduced by the Minister of Energy, Agnès Pannier-Runacher, the first analyzes delivered by these experts suggested that the majority of between them would plead for a the state in which (at least in outline).
« How do you want to decouple gas and electricity prices when gas is used to avoid electricity shortage? […] The spot market selects assets for demand for the next thirty minutes. Nothing else can do it better “, had launched Jean-Michel Glachant (Florence School of Regulation). “ The idea of decoupling is just a formulation used by Ursula von der Leyen [la présidente de la Commission européenne, ndlr]. But is there another market in Europe where we want to separate the price of an input from that of the output? “, had engaged Anna Creti. And David Newberry (Cambridge University) adds:
“It is important that marginal prices guide decisions. If you want to decrease the demand for gas, you have to signal it through the price. Because this is what encourages decarbonization, in order to lower this price”.
However, one voice stood out: that of the economist Jacques Percebois, who defended the “single buyer” model. In this case, a buyer and coordinator would sign contracts with several producers. “This coordinator, who might be the RTE network manager, would auction electricity needs. In other words, it would organize calls for tenders and choose the most efficient producers. Competition would take place between French producers. We would then speak of competition for the market and not of competition by the market,” explained in January to the Tribune the professor, who proposed maintaining a parallel “small spot market”, presented as “a balancing market” in the event of a power failure.
“This path is in my opinion the best and the most realistic because it makes it possible to reconcile regulation and the market. There is an incentive for efficiency by the market,” he said.
But his proposal does not appear in the report submitted to CRE, except in a footnote at the end of the document.
Long-term contracts can develop, but without drying up the spot market
For its part, Bercy affirms that it is in a position fairly close to that of the experts, and does not want to modify the method of fixing the price of electricity in the short term on the market, despite the murderous interventions of Bruno Le Maire at the beginning of crisis. On the other hand, “ iinstruments must be developed which reform the retail market, i.e. which bring the price paid by the consumer closer to the cost of production “, we explain in the entourage of Bruno Le Maire. And this, above this short-term market, in order to correct it.
Concretely, the idea would be to generalize “contracts for difference” (CfD), these long-term contracts which provide energy producers with a fixed remuneration over ten, fifteen or twenty years. This mechanism, which moreover already exists in France, provides for financial compensation to renewable energy operators when market prices are lower than the target price set during calls for tenders, in order to encourage their development…but also, in return, a payment of the surplus to the public power when these prices are higher.
“As a producer bound by this type of contract, you sell on the traditional wholesale market, but there is an ex-post adjustment. For example, if you sell a MWh on the spot market at 150 euros, but the contract provides for a ceiling of 100 euros per MWh, you will have to return 50 euros a posteriori”, explains Jacques Percebois.
However, according to the experts appointed by the CRE, these CfDs can be developed in parallel with the auctioning system, but only in a limited way, and in parallel with other long-term contracts. “ These should not dry up the short-term market “So defended Anna Creti on Wednesday. In other words, the latter must remain the reference, rather than being circumvented by most players within the framework of bilateral partnerships. “ The idea is that these off-market transactions are the exception rather than the rule. It would only be adjustments, in order to put a little oil in the wheels “Comments someone close to the file.
This position might therefore clash with that defended by France. Because according to our information, Bercy is considering extending this CfD system very widely, by disconnecting 80%, 90% or even 100% of the electricity production infrastructures in France from the spot market. ” Under these conditions, the risk is necessarily that the wholesale market only becomes a supplementary market », slides to the Tribune the expert who requested anonymity. “ In any case, that is what we fear. The daily auction market should not just be theoretical. These CfD mechanisms must leave operators the option of the short term, which must in any case remain the pivot for all contracts. adds Anna Creti. It remains to be seen whether these will be heard, while the Prime Minister, Elisabeth Borneshould meet with Agnès Pannier-Runacher Thursday, March 9 on the issue.
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