A so-called return to normal in energy prices is announced by the President of the Republic and the Government. But if the markets have indeed calmed down, the return of taxation, in particular on electricity, will increase the bills of the French.
“The price of electricity will return to normal” : the declaration of President Emmanuel Macron did not go unnoticed during his press conference on January 16, 2024. After a energy crisis which caused gas and electricity prices to soar in Europe in 2022, everyone is hoping for a return to normal. But between the slow reform of the electricity market in Europe, global trends in the gas market and the tax and tariff provisions taken in France, what will really happen to our energy bills?
First of all, it is necessary to clear up a misunderstanding. Many political figures were moved in 2022, and even now, that the prices on wholesale electricity markets in Europe depend on the price of gas. There is nothing mysterious in this link: production plants are called by increasing marginal cost, and the market price aligns with that of the last plant requested. On the principle of this “merit order”, renewable and nuclear production methods are called first because the cost of water, wind and sun is zero and that of uranium weighs little in the production cost of ‘electricity. Conversely, gas plants are put into operation last because the price of gas is a major component of their operating cost.
No hope of seeing the electricity market reform in Europe change something in the short term: prices will continue to be formed on the principle of “merit order”, therefore according to gas prices. “Certainly, the announcement of the reform has somewhat reduced risk aversion on the market because it now allows Member States to encourage producers and suppliers to draw up long-term contracts which, later, will avoid excessive fluctuations. strong prices. But to understand price developments on the markets this year, we only need to consider the classic underlying factors: availability of nuclear power and changes in the price of gas,” analyzes Mathias Laffont, Director of Uses and Territories at the UFE (French Electricity Union).
Lull on the fundamentals
On the first aspect, the French nuclear fleet has regained color after its setbacks due to the detection of a corrosion phenomenon end of 2021. The year 2023 saw the return of several power plants after work or maintenance, which allowed EDF nuclear power to produce 320.4 TWh while 2022 had seen the lowest level (279 TWh) for a long time . Even if we are still far from highest historical levels (430 TWh), the return of the atom reassures European markets and avoids the phenomena of discrepancies which had been observed in 2022 between the prices of France and those of Germany.
On the second aspect, gas prices in Europe have experienced a lull. The reduction in Russian gas imports – they now represent only 7% of gas consumption compared to 31% before the crisis – had led to a sharp increase in prices, from around 20 €/MWh at the start of 2021 (monthly average) to 100 €/MWh at the end of 2021, and up to more than 200 €/MWh in the summer of 2022. The gradual replacement of Russian gas with LNG has allowed prices to fall to around 40-50 €/MWh since the first quarter of 2023 . « The share of LNG in gas consumption in Europe increased from 19% to 38%. Almost half of imports come from the United States. Globally, investments in LNG infrastructure will increase capacity liquefaction of more than 60 billion m3 by 2026, which will reduce supply tensions between Europe and Asia which currently compete with each other” explains Laurent Néry, director of market analysis for ENGIE’s GEMS entity.
Thus, the Old Continent is moving towards a sort of stabilization of electricity prices. It is currently around 90-110 €/MWh on the markets and deliveries for 2025-2026 are selling for around 80-90 €/MWh, far from the 200-250 €/MWh at the end of 2022. The market is also less tense because the drop in demand has set in under the constraint of inflation, and the strong increase in the production of renewable energies secures the supply. Barring another geopolitical incident – and unfortunately tensions in the Middle East remain very worrying – the situation is relatively under control.
The great return of taxation
However, as price levels are higher than before the crisis, it is illusory to speak of a “return to normal”. Or it should be understood as the end of the tariff shield which had been put in place since February 2022 to avoid excessive inflation in household energy bills. The Government has just announced the end of this shield with two consequences. First, prices are no longer frozen, but the lull in the markets compensates for this decision. Secondly, taxation is regaining its rights and this will be felt: lowered from 32.44 to 1 €/MWh at the time of the shield, the excise price on electricity (tax previously called TICFE) will return to a substantial level (around €20/MWh). The impact on the electricity bill of residential customers, announced by the Minister of the Economy Bruno le Maire, will be 8.6% for a basic rate and 9.8% for the peak/off-peak rate. . The gas tax (TICGN) is increased to €16/MWh. Hence the questioning of those involved in the electricity sector: “A few years ago, the TICFE was linked to the financing of renewable energies, but this is no longer the case today because the tax feeds the general budget of the State. We therefore have two questions: why maintain such a level of tax if it no longer contributes to this financing? And why put it at a higher level than that on gas for example, when electricity is very carbon-free and gas emits CO?2 ? It seems to us that there is a signal to be reversed,” argues Mathias Laffont.
In his optimistic speech, the President perhaps mentioned in veiled words the future developments that the Government hopes to put in place, such as the “universal nuclear payment” which should allow each consumer to benefit from the lower production cost of the historic nuclear fleet. . But this payment will not arrive before 2026, and its terms have yet to be clearly defined. Concerns about the level of the bill still have a bright future ahead of them…