Should the French executive chain itself to the doors of the European Parliament to obtain its exit from the European electricity market? While a reform of this market has been under debate for several months in Brussels, certain political leaders of the opposition have once again expressed their hostility to the electricity price formation mechanism which prevails at Community level. Valérie Rabault, the vice-president of the National Assembly, thus judged at Sud Radio on Wednesday November 30 that France had to do the “sit-in” in Brussels to get France out of the current mode of price regulation. The RN mayor of Perpignan Louis Alliot also called for draconian measures and in particular to “tell Europe: we stop with the famous European energy agreement and we practice the prices we want”.
As a reminder, the wholesale market price has so far been determined in Europe by the production cost of the last plant called to balance supply and demand on the electricity grid. These plants are called on this interconnected network according to the so-called “merit order” principle, ie from the least expensive to the most expensive. Wind, solar or hydraulic power plants, which consume wind, sun and water, are obviously the first to be called on the network. Then comes nuclear power, and then, quite far behind, gas and coal-fired power stations. Depending on the fluctuations in the price of the two fossil fuels, one or the other of the two is used to complete the network.
In Europe, it is often a gas plant, hence the discourse heard in the mouths of many politicians according to which the price of gas would set the wholesale price of electricity in Europe. But it’s not always the case. In a period of low electricity demand or when the means of production are strong, it is not uncommon for the renewable energy-nuclear pair to be sufficient to balance the network. The price of electricity is then very low. On the other hand, when demand is strong, such as in winter or when low-carbon electricity production is not sufficient to balance the network, as at the moment, it is necessary to engage thermal power stations, including gas-fired ones. However, the price of these molecules has soared since the war in Ukraine and Russia’s use of this resource. for geopolitical purposescausing de facto to increase the price of electricity, which is reflected in the bills of consumers and manufacturers.
A dangerous exit
Claiming the low cost of nuclear electricity in France, which “comes out at 47 euros per megawatt hour when it is produced” at the power station in his constituency, against above “325 euros per megawatt hour” when it is resold to its craftsmen, the PS deputy Valérie Rabault for her part judged that it was necessary for France to join Portugal and Spain, which according to her succeeded in leaving this market by thus limiting the explosion of their invoice for individuals and businesses.
Statements that leave Nicolas Goldberg, energy expert at Colombus consulting and head of this division at Terra Nova, more than skeptical: “Advancing that we have to get out of this market when France is a major importer of electricity is just as stupid as dangerous, sometimes with a political background of Europhobia. If we leave the markets, who will guarantee that we can always import electricity when we need it? At what price, when the markets are precisely made so that the means of Balancing are the cheapest? Leaving the market means exposing yourself even more to price volatility,” he said.
A reality that struggles to infuse the spirit of certain speeches, some of which veer into demagoguery. This Wednesday, November 30 at 7 p.m., France was indeed importing nearly 6GW of electricity, i.e. the installed power of as many nuclear reactors. Without its European neighbors and interconnections, France would plunge into darkness, given its very low current nuclear production. Among the slayers of the market, some admittedly rightly point out that the interconnections existed before the European market. The fact remains that for Emeric de Vigan, vice-president of the analysis company Kpler, this provides “optimization as well as price transparency”. “Exiting the market means going over-the-counter in electricity exchange offers. And that’s a bad idea when you’re on the wrong side of the border, which is our case at the moment. he advantage of this market is that the players all have an interest in playing the game, otherwise they lose out economically”, indicates Nicolas Goldberg.
The perverse effects of the Iberian Peninsula
The other solution, to hear Valérie Rabault, would be to ask, like Spain and Portugal, for a temporary exit from the market, which would have allowed the two countries to cap gas prices. An idea also defended on the other side of the spectrum by the boss of Medef, Geoffroy Roux de Bézieux. The idea is attractive, but it has limits. In the case of the Iberian Peninsula, it was the very weakness of the interconnections with the rest of the continent that enabled the two countries to request a specific exception to the normal functioning of the market.
The price of gas is certainly capped there, but the gas companies receive compensation partly financed by consumers as well as profits deducted from electricians who have made record profits. “It should be remembered that this simply amounts to subsidizing gas consumption to influence prices. This encourages burning more gas and the consumer does not always benefit because this subsidy is re-invoiced to him on his taxpayer bill. everything, with leaks to France (through exports, editor’s note) which therefore benefits from this system without paying for it”, remarks Nicolas Goldberg again. Subsidizing gas, at the very moment when Europe wants to get rid of it for climate and sovereignty reasons, is in itself a questionable choice.
Despite the abundant communication from the Spanish government on this device, which has effectively succeeded in limiting wholesale prices, in detail, the increase in the bill for individuals has hardly been slowed down. “It is a transfer of the cost from the consumer to the taxpayer and/or the producer. This therefore in no way solves the problem: the lack of production”, notes Emeric de Vigan. This is no doubt the reason why after having considered it, Brussels now seems to have ruled out a generalization of the Iberian exception.
Reform needed
Among the critics of the European market, some also have a short memory: “We did not criticize the electricity markets much when France was an exporter, that is to say most of the time when our nuclear fleet was producing correctly. France has largely benefited of this system to ensure that it sells its renewables and its nuclear abroad, which was a very good thing from an economic and climatic point of view”. In 2021 for example, so before the Ukrainian crisis and the difficulties in the French fleet, electricity sales supported the French trade balance to the tune of 2.6 billion euros. “With nuclear power producing normally, France would absolutely be rolling in gold this year,” adds Emeric De Vigan.
If they consider it dangerous to leave the European electricity market, the two specialists claim, on the other hand, the need to transform it in depth. “The market allows a correct allocation of the means of production. In the short term it must be kept, the concern is for long-term investments. The current market must be adapted”, insists the Kpler expert.
A view shared up to the Brussels summit, by Ursula von der Leyen: “the current design of the electricity market no longer does justice to consumers”, recently explained the head of the commission, referring to the first half of 2023 for more concrete announcements. The idea of capping the price of gas is under discussion, but producers will need to be convinced to sell it to Europe. In a globalized liquefied natural gas market where demand is soaring, it is difficult to know if the latter will accept it without flinching.
The other mechanism under discussion is that of joint gas purchases, which would allow Europe to be more powerful in negotiations and therefore lower the bill. Some even more ambitious reform ideas provide for the creation of a dual market with fossil fuels on the one hand (remunerated on the same model), and renewable energies on the other (remunerated by long-term contracts). But European countries are not aligned with this idea.