Overheating in sight for electricity tariffs

BFM BUSINESS INFO – Electricity prices are soaring and risk affecting household bills. It could increase to 6% at the start of 2022. The government and the regulator are worried.

After the 10% rise in gas prices on July 1, those of electricity are also likely to suffer a feverish outbreak. On Tuesday, the regulator is to announce a slight price increase, less than 1%, for August 1st. But the next revision, scheduled for February 1, 2022, is already worrying the government. Prices on the electricity market also soared by 40% to reach €74/MWh, in the wake of those for oil and the price of carbon.

The concern is all the stronger as prices should remain on this upward trend. 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 which serves as a reference in the calculation of the prices which will be decided next January and applied on February 1, 2022.

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

The government on alert

According to our information, meetings have multiplied in recent weeks between ministerial advisers, Matignon and the Elysée to deal with this subject. With the energy regulator around the table to propose solutions to limit this sharp rise in the middle of the presidential campaign. “The subject is already very sensitive”, recognizes a source close to the file. At the Ministry of Ecology, the ball is returned “to the regulator” while recognizing that “the rise in electricity prices will have an impact on prices”. “The government remains vigilant as to the evolution of prices for consumers” assures the office of Minister Barbara Pompili. At the Ministry of the Economy, we meet at the start of the school year to discuss the subject.

Behind the scenes, several solutions are on the table. According to our information, a complex scenario is circulating in the ministries which would consist in lowering 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 disburse less aid to renewable energy operators. Already this year, the “CSPE” should cost 5 billion euros against 7 billion last year. “The state could return part of this budget saving to consumers by lowering this tax” deciphers a close source.

lower taxes

The Ministry of Ecology seems to be in favor of this solution, while the Ministry of the Economy is dragging its feet because the budget deficit is exploding because of the crisis. Nothing has been decided yet and won’t be until the fall. If the State accepted this option, it would have to go through a legislative amendment within the framework of the Finance Act at the end of the year. The subject promises to arouse controversy. Already, at the beginning of 2017, a few months before the presidential election, the Minister of Ecology Ségolène Royal had tried to block a price increase. After a showdown with the regulator, the latter finally had the last word. This time, consultation with the government is already evident.

The second option is technical and was already introduced in the energy law in 2019. It consists of increasing the quantity of electricity that EDF can sell to its competitors (Total, Engie, etc.) at a low price of 42 euros/ MWh, i.e. 40% less than current market prices. “This would make it possible to lower the tension on the electricity market and to lower prices” wants to believe a good connoisseur of the file. And therefore to limit the impact on the bill of the French in six months. For this, the government just needs to issue a decree. But this would financially penalize EDF, which wants to keep its nuclear electricity production at low cost to resell it at the high market price. The effort seems inevitable to avoid such a price increase. It remains to be seen whether it will be carried by the State or not EDF.

Matthew Pechberty Journalist BFM Business

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