Lhe economic consequences of Russia’s invasion of Ukraine are likely to make Europeans have a difficult winter. The indefinite shutdown of the Nord Stream 1 gas pipeline by Russia is increasing the pressure. Even if the European Union (EU) has reduced its dependence on Russian gas, doing without it will be far from painless.
The rise in gas prices, which are ten times higher than a year ago, is already forcing companies to cease their activity and certain public services to reduce it.
In France, this mechanism does not yet affect individuals, who are protected by the tariff shield put in place by the government. But these budgetary efforts cannot be sustainable for very long.
In this context, calls for the reform of the European electricity market, even belated, are salutary. Emmanuel Macron formulated it in a sibylline way, Monday, September 5, during the press conference which followed his interview with the German Chancellor, Olaf Scholz: ” The price [de l’électricité] needs to be trained more consistently”explained the President of the Republic.
That’s an understatement. This energy crisis is the painful indicator of a system which could have certain virtues in calm weather, but which has now become obsolete by weakening the interests of Europeans themselves. Long more preoccupied with the liberalization of its internal market than with its issues of sovereignty, the EU finds itself trapped in mechanisms designed within a political framework that is now showing its limits.
Shared observation
The way in which electricity prices are set in Europe is very dependent on the price of gas, even though several European countries – including France – do not mainly produce their electrons from gas. The logic is based on a principle: the prices depend on the cost necessary to put into operation the very last power station called in to respond to peaks in demand on the electricity network. If it is a coal or gas plant, electricity prices will be indexed accordingly. The spectacular surge in gas prices has thus caused electricity prices to explode to levels never reached before, providing Vladimir Putin with a powerful means of pressure.
This logic has long been denounced by the European left and the unions in the energy sector in France. It is good news that the observation is now shared by a certain number of governments and the European Commission, even if the terms of the reform remain to be specified.
Several guidelines should guide it. First, European solidarity – France will particularly need it this winter, given the poor state of its nuclear fleet. In recent years, our country has needed to import electricity around forty days a year to pass the winter consumption peaks. The situation looks much more tense. Cooperation in terms of gas stocks and electricity supply is essential. We must at all costs avoid every man for himself, which would play into Vladimir Putin’s hands.
Next, it is important to define electricity as a “common good”, protected from sometimes artificial competition that favors the short term. Finally, the new electricity market must be aligned with the EU’s climate objectives towards the decarbonisation of our energy. The vagaries of the market should no longer be the sole compass of our energy policy.