Overheating in sight for electricity tariffs

BFM BUSINESS INFO – Electricity prices are rising and threatening to affect household bills. At the beginning of 2022, this could rise to 6%. The government and the regulator are concerned.

After the 10% increase in gas prices on 1 July, electricity prices will also experience a feverish outbreak. On Tuesday, the regulator announced a slight price increase, less than 1%, for August 1. But the next review, scheduled for February 1, 2022, is already worrying the government. Prices in the electricity market also increased by 40% to €74/MWh, in the wake of those for oil and the price of carbon.

The concern is all the greater as prices should remain on this uptrend. Some analysts even estimate that they could rise to €100/MWh by the end of the year. However, it is precisely the month of December that serves as a reference for the calculation of the prices to be determined in January and applied on February 1, 2022.

To date, specialists estimate that the impact on prices will be between 7% and 8%. Taking into account the end of a 1.8% catching-up billed in 2021, rates would increase by 5% to 6% in 2022 compared to this year.

The government on edge

According to our information, in recent weeks there have been numerous meetings between ministerial advisers, Matignon and the Elysée to deal with this topic. With the energy regulator around the table to propose solutions to limit this sharp increase in the middle of the presidential campaign. “The subject is already very sensitive,” admits a source close to the file. The Department of Ecology has returned the ball “to the regulator”, while recognizing that “the rise in electricity prices will have an impact on prices”. “The government remains vigilant about the evolution of prices for consumers,” assures the cabinet of Minister Barbara Pompili. We meet at the Ministry of Economic Affairs at the beginning of the school year to discuss the subject.

Behind the scenes, various solutions are on the table. According to our information, there is a complex scenario circulating among the ministries that would consist in a reduction in the tax on electricity. The “contribution to the public energy service”, known as CSPE, weighs on a third of the household bill. It mainly finances subsidies for wind turbines and solar panels. However, the increase in market prices will allow the state to pay less aid to renewable energy operators. This year the “CSPE” should already cost 5 billion euros, compared to 7 billion last year. “The state could return some of this budget saving to consumers by cutting this tax,” deciphered a nearby source.

lower taxes

The Ministry of Ecology seems to be in favor of this solution, while the Ministry of Economy lingers as the budget deficit explodes due to the crisis. Nothing has been decided yet and that won’t be until the fall. If the State were to accept this option, it would have to implement a legislative amendment within the framework of the Financing Act at the end of the year. The topic promises to arouse controversy. Already at the beginning of 2017, a few months before the presidential elections, Minister of Ecology Ségolène Royal had tried to stop a price increase. After a confrontation with the supervisor, he finally had the last word. Consultation with the government is already visible this time.

The second option is technical and was already introduced in the Energy Act in 2019. It consists in increasing the amount of electricity that EDF can sell to its competitors (Total, Engie, etc.) at a low price of EUR 42/MWh, ie 40% less than current market prices. “This would make it possible to lower the tension in the electricity market and lower prices,” a good expert on the file believes. And thereby limit the impact on the French account in six months. The government only needs to issue a decree for this. But this would put EDF at a financial disadvantage, which wants to keep its nuclear power production at a low cost in order to resell it at the high market price. The effort seems inevitable to prevent such a price increase. It remains to be seen whether it will be worn by the state or not.

Matthew Pechberty Journalist BFM Business

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