This is one of the hot topics of the start of the school year, which will undoubtedly burst into the presidential campaign. The prices of electricity and gas on the wholesale markets have been experiencing dizzying increases in recent months on a European scale. The wallets of the French can already feel it. The 2.8 million customers of Engie’s regulated gas tariff, who have seen their bills increase by an average of 8.7% (or 7.9% including tax), can attest to this. As for individuals who heat themselves with electricity, if these increases do not yet materialize on the bill, they could experience the same fate. Suppliers and manufacturers also harbor legitimate fears. Explanations.
Why are gas prices soaring?
When it comes to gas, current wholesale prices are sending shivers down the spine. A historic high had already been reached in early July, with prices close to 38 euros per megawatt hour on the TTF market in the Netherlands, which is the benchmark in Europe. The increase has continued since, and contracts for October 2021 are currently trading at € 55 / MWh. A year ago, when the Covid was still very much undermining the world’s economies, the same gas price peaked at € 13 / MWh.
This frenzy can be explained above all by macroeconomic factors. “There is a very rapid economic recovery in Asia, which largely drives gas consumption on a planetary scale. Supply is struggling to keep up, which pushes prices up,” says Julien Teddé, managing director of the broker Opera Energy. In fact, American producers and those located in the Gulf send their liquefied natural gas (LNG) ships to Asia as a priority. In a recent note, the French Energy Regulatory Commission (CRE) indicated that Europe had received 13 ships in July 2021, compared to 22 in July 2020.
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Of course, America and the Middle East supply very little of the gas consumed in Europe, unlike Russia (43% of gas consumed in Europe in 2020) and Norway (20%). But several difficulties punctuated the month of August. One of the main Russian gas pipelines to Germany, the Yamal-Europe, operated with very reduced capacity after a fire in a gas processing plant. Russia and its actor Gazprom have also decided to remain deaf to European requests to increase gas deliveries for the month of September. This is a way of maintaining high prices and therefore much more favorable market conditions when the Nord Stream 2 gas pipeline enters service, scheduled for the next few weeks. This strategy is denounced by many experts, while Gazprom has just tripled its profit over one year, in the second quarter.
With regard to European reserves, they have been undermined by a winter of 2020 which has been prolonged. And while summer is the period when Europe is rebuilding its stocks, CRE has just indicated that the continent’s storage levels were at their lowest for years. “The market is expecting a very, very tense winter,” recalls Julien Teddé.
What about electricity?
Electricity, whose prices are much more volatile than gas, has also experienced a spectacular increase in recent months. While wholesale prices peaked at 45 € / MWh on a daily average over the first week of September 2020, it is 80 € / MWh over the first seven days of September 2021, according to data from RTE. For many hours last week, prices blithely exceeded the 100 € / MWh mark. Spain thus experienced an all-time high last Thursday, with a price of 140 € / MW. A mark erased no later than Sunday evening, with a price of 155 € / MWh. The electricity sold in 2022 on the futures markets for its part reached an all-time high on Tuesday, at € 93.95 / MWh.
Why such an increase? The price of wholesale electricity reflects the marginal cost of the last generation means used to balance the grid. In France, it is generally gas-fired power stations and, less and less, coal. This cost is very expensive today, pushed upwards by the price of fuel (natural gas and coal, therefore) as well as the price of a tonne of CO2, which has since gone from 25 euros to 60 euros. the beginning of the year. “When the price per tonne takes one euro, it is between 30 and 70 centimes added to the wholesale price depending on whether you start a gas or coal power plant”, illustrates Julien Teddé.
Who will be impacted?
The answer is vast. Manufacturers such as steelmakers, metallurgists, chemicals but also agrifood, large consumers of energy, will obviously see their margins impacted by this increase. “Among electro-intensive manufacturers, the energy bill can represent between 5% and 20% of the added value, it is anything but negligible,” says Gildas Barreyre, in charge of the electricity subject for Uniden, which brings together these manufacturers. For those who emit CO2 during the production of goods, it is also a double scissor effect given the rise in the price of CO2. These expenditures could limit the extent of the recovery in this sector.
Some vendors may also feel the current going. On Tuesday, the British regulator announced the bankruptcy of two local companies supplying around 100,000 customers on the island. The latter, who had signed fixed-price contracts with their customers, no longer had enough cash to buy electricity on the wholesale markets and guarantee supply to their customers. Are similar cases possible in France? Arenh, which allows suppliers to buy part of EDF’s nuclear electricity at a price of € 42 / MWh, partly limits the risk according to Julien Teddé. “Arenh covers between a large half and two thirds of a supplier’s portfolio”, explains the expert. But the latter to warn: “It is a low-margin business. However, after a year 2020 marked by the Covid, the financial situation is very fragile in the sector. The suppliers who supply themselves on the markets at this time must suffer . ”
Finally, consumers will not be able to pass between the drops. Because the price of electricity on the wholesale markets is one of the components of the bill paid by the end consumer (with the various taxes, and the cost of transmission). The customers of the regulated tariff of Engie have already suffered the blow, with an increase of 8.7% in September. Electricity TRVs, which concern 70% of French households and must be amended on February 1 by the CRE, will they follow the same movement? “According to our estimates, the tariff should be increased between 7% and 10% to absorb the increase in wholesale prices,” says Julien Teddé.
Still, in February, the presidential campaign will be in full swing. Such a significant rise in electricity prices at this time is explosive. The founder of Opéra Energie believes that the public authorities will not take this risk. According to him, several options are on the table: the first, highly improbable, would be to freeze regulated sales prices. “Ségolène Royal tried it in 2014, but her decision was overturned by the Council of State”. The second would consist for EDF in increasing the Arenh ceiling for suppliers, which would make it possible to limit price inflation.
A final option would consist in playing on the fiscal lever, by lowering the amount of the Contribution to the Public Service of Energy (CSPE), which represents a third of the bill and makes it possible to subsidize renewable electricity. With the rise in prices on the wholesale markets, the CSPE is expected to cost 2 billion euros less, which the state may be tempted to pass on to the consumer’s bill. The State, which knows the sensitivity of energy prices, should soon pull out of the woods on the subject.