Tribune. Since the start of the summer, we have been witnessing a sharp rise in electricity prices throughout Europe, which can be explained by a combination of several factors and which makes consumers fear a difficult winter. However, it is important to distinguish the retail price, paid by the end consumer, from the wholesale price of electricity sold and purchased on the so-called “spot” market., the Electricity Exchange. Currently, it is mainly large industrial consumers who buy their electricity directly on the wholesale market, or even at a price indexed in real time to it, who see their bills increase.
The “tariff shield” system, announced by the government at the end of September, will make it possible to limit the increase in the retail price paid by the vast majority of consumers, who still benefit from a regulated sales tariff (TRV) – i.e. around 23 million households out of 33 million today in France, and more than 2.5 million small businesses – or a price indexed to the latter. The TRV should thus increase by 4% during the next revision, scheduled for February 2022, against an increase of 12% initially expected.
The increase in the wholesale price is largely due to the rise in the price of natural gas on the international market and the rise in the price of CO2 on the European carbon market. The wholesale price of the megawatt hour (MWh) has increased from 32 euros on average in 2020 to more than 100 euros currently. The price per tonne of CO2 has gone from 5 euros to 60 euros in just a few years and has doubled since the start of 2021; it now represents 12% of the production cost of a gas power plant and 45% of that of a coal power plant. As a large part of the electricity in the European Union is produced with fossil fuels (20% with gas and 13% with coal, but it is 6% in total only in France), any increase in the price of gas, coal and carbon is mechanically reflected in the cost of producing electricity produced with fossil fuels.
The arsonist
The wholesale price observed in France follows the wholesale price in neighboring countries, because the European electricity markets are interconnected. The price on the wholesale market is fixed hour by hour according to the mechanism of the merit order (“Order of merit”) – we “call” the power plant with the best value economically first, the lowest price last. The equilibrium price is equal to the variable production cost of the last plant called, the one that balances the supply and demand for electricity. As wind power injections have been weaker than expected in recent weeks, it is gas-fired power stations that most often determine the equilibrium price, at the very moment when the prices of gas and the tonne of CO2 were also climbing.
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