Electricity prices: what could change for consumers with the new European agreement

Protect without helping. This is the subtle balance that was to be found on Tuesday by the energy ministers of the Twenty-seven, gathered in a sort of last chance meeting aimed at defining the future functioning of the electricity market within the 'European Union. They reached an agreement, which marks a crucial step and ends months of deaf dialogue between France and Germany. From a formal point of view, the ball is now in the European Parliament's court with a first meeting set for October 19 at 11 a.m. The goal now is to find common ground by the end of the year.

As it currently stands, the text resulting from the Council should allow France to have an electricity price which “reflects the cost of production of its energy mix”, explained the Ministry of Energy Transition on Tuesday evening. For Paris, the challenge is to allow French consumers, whether individuals or businesses, to benefit from its particular energy mix. With its 56 nuclear reactors, ensuring around 70% of national electricity consumption, the country has relatively cheap electrons. Except that, until now, the wholesale price of electricity was not directly linked to the average production cost but to that of the last power plant called. Or, in periods of high tension on the network, gas power stations. As long as the prices of the latter were low, this did not pose a problem, but with the war in Ukraine, they skyrocketed, bringing with them that of electricity.

With the new agreement, tracing the contours of “market design”, electricity prices should reflect those of production thanks to the implementation of contracts for difference (CFD). This “two-way” mechanism is based on the signing of long-term contracts between public entities (the State) and electricity producers. A benchmark price per megawatt hour is defined. When that of the wholesale electricity market soars, the difference perceived by the producer between this benchmark price and the reality is returned to the State, which can redistribute it to consumers. It is a way to protect them “without putting in place costly price shields”, recalled Agnès Pannier-Runacher, the Minister of Energy. Otherwise, when wholesale prices collapse, the State compensates the producer by paying him the difference between the benchmark price and the wholesale price.

The system is frequently used during calls for tenders by the Energy Regulatory Commission (CRE) for the allocation of new photovoltaic parks and land or maritime wind farms. But it could not be applied to the existing nuclear fleet. The expected generalization - and defended by France - of this principle must therefore result in a smoothing of electricity prices for consumers and better visibility on their income for producers. Not everything is resolved, however. Because the question of the cost of producing nuclear electricity has not been resolved. It should also be the subject of fierce discussions between the State and EDF, but also between France and its European partners (notably the Germans) who do not want to see France offer manufacturers lower prices. energy very very competitive, and therefore, risk distortion of competition. The challenge will be to find a level that reflects reality, while being acceptable to all parties (EDF, the Élysée, Brussels, industrialists, etc.).

Avenues have already been opened, with the publication by the CRE of a cost of producing nuclear electricity at 60 euros per MWh, “close to those of renewable electricity”, the Élysée recalled last night. A way to reassure Berlin which is relying massively on wind and solar power. This cost foreshadows what the price of electricity in France could be tomorrow. To this should be added the producers' margin - EDF is all the more sensitive to this as it must finance all or part of the new nuclear power - but also various taxes and electricity transport costs. “The agreement allows us to think calmly about the regulation of existing and future nuclear power,” summarized the Élysée. The negotiation sets a general framework, different from the negotiation with EDF, which is another subject. If the final price is far from being established, the agreement should guarantee real visibility in the medium term on the invoices paid by consumers - individuals and businesses - and avoid sudden surges.