Electric shock on Europe
THE CIRCLE OF ECONOMISTS • 13/09/2021
French households are paying the price: the start of the school year is marked by a significant increase in electricity and gas prices. Patrice Geoffron explains why all European countries are affected, without exception
In the 1970s, the fear of "oil shocks" had imposed itself in the daily life of Europeans, a combination of increases in the price of the barrel and threats of shortages. Currently, Europe is entering a period, by analogy, of "electric shock". Wholesale electricity prices are around € 100 / MWh (for delivery in twelve months), twice as high as at the start of the year and above the record reached in 2008.
The origin of this shock stems from multiple factors, which are difficult to disentangle. Part of the explanation can be found on the gas side: the economic recovery is attracting LNG (liquefied natural gas) LNG carriers to Asia, while Russian deliveries to Europe have been hampered by technical problems. As gas supplies part of the European power stations, the price of electricity has been sucked upwards; as well as by the price of coal, boosted by Asian demand, to a record level for more than ten years.
This outbreak comes at the time of the completion of the Nord Stream 2 gas pipeline, the subject of transatlantic diplomatic tensions. With the prospect of doubling Russian gas import capacity via this new infrastructure, the debate over the EU's growing dependence on Russia is sure to ignite again. This is the case in Germany, before the elections, the Grünen opposing the commissioning of Nord Stream 2.
Other factors relate to the conditions of the energy transition in Europe: the price of European carbon quotas exceeded € 60 / tonne of CO2 this summer, double the level of last January. This development is consistent with the EU's commitment to reduce emissions by 55% by 2030, instead of 40% (following the presentation of the Fit for 55 vision in July by Ursula von der Leyen ). In addition, the pressure on supply was compounded by lower than expected wind energy production and below levels of previous years.
A threat to households
This shock is of primary concern to electro-intensive manufacturers, whose supply is partly indexed to wholesale prices; even if, for France, a part is supplied at the now very advantageous price of 42 € / MWH, via access to the historic nuclear power of EDF.
But the threat weighs even more on households who will suffer both the increase in the price of electricity and, for some, that of gas. Euphemism: a few months before the presidential election, a sharp rise in regulated tariffs is a thorny prospect. Spain could foreshadow what is coming on our side of the Pyrenees: the weakness of wind power during the summer, combined with an increased use of air conditioning, has already caused prices to jump to a high voltage level for Iberian households. So much so that Teresa Ribera, Minister for the Ecological Transition, calls on Brussels to limit the increase, considering that the “electric shock” risks reducing Europeans' support for the energy transition.
And that is what is at stake: to ensure that the conditions of access to energy are a factor of inclusion, in Europe, as the low carbon transition progresses. Keeping in mind that, the last energy price shock (oil, in 2018) had triggered the yellow vests movement. In a Europe which is embarking - resolutely and legitimately - in a decade of profound transformations, this experience must be reflected on.
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