EconomyOil, gas, electricity… Will energy prices continue to rise...

Oil, gas, electricity… Will energy prices continue to rise in Europe?

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Always higher. In recent months, energy prices have been rising steadily in Europe, straining wallets. In France, the price of gas increased by 8.7% in September, after + 5% in August and + 10% in July. At the pump, the price of unleaded 95 (SP95 E10) has increased by 25 euro cents / liter for a year. In Spain, the wholesale price of electricity has tripled over twelve months, causing the bills of many households to explode. The whole issue now is whether these increases are temporary … or whether Europe must prepare for ever more expensive energy in the coming years. To get a clear answer, you have to separate the different energy sources.

On oil, “we are in a catching-up phase, with prices returning to pre-crisis levels,” explains Bernard Keppenne, chief economist at CBC Banque. In the short term, it is likely that these prices will stabilize: on the one hand, OPEC + [alliance des pays pétroliers] could increase its production, and on the other hand, the persistence of the coronavirus risks reducing economic activity, and therefore the demand for oil ”.

Gas linked to electricity

Regarding gas and electricity, the problem is a little different. “For gas, there is first of all a sharply rising global demand due to the economic recovery, as well as supply tensions,” summarizes Bernard Keppenne. Two factors that help to push prices upwards, as each country seeks to accumulate sufficient reserves before the winter season. “We import 99% of the natural gas we consume” recalled at the end of August Francis Perrin, research director at Iris specializing in energy strategies and policies.

In addition to its use by individuals or businesses, gas is also used to produce electricity, via thermal power stations. However, in Europe, the price of electricity is determined by the last means of production “called” on the network. To simplify, when it is necessary to produce electricity, we first use the cheapest energies: wind, solar, hydraulic. If they are not available or do not have enough capacity, we add energies whose cost is higher, in this order: lignite (low quality coal), nuclear, coal, and finally gas (the most expensive) . In short, an increased demand for electricity requires the use of gas… which itself is in great demand. Hence the prices which are soaring… and which are perhaps not about to fall again.

A rising CO2 market

“I think that electricity prices will remain high in the coming years,” explains Maxence Cordiez, an engineer specializing in the field of energy. First, because of the structural trends in gas. Then, in view of the climate commitments made by Europe, the price of CO2 should increase, or at least remain stable ”.

Currently, European energy and industrial companies that consume fossil fuels (such as gas or coal) have to buy CO2 emission “quotas” via a market. Until the end of 2020, a tonne of CO2 traded around 20-25 euros. But the announcement by the European Commission of a plan to accelerate the reduction of greenhouse gas emissions has caused a runaway. Companies have in fact sought to buy as many “quotas” as possible before the rules get tougher. The price of a tonne of CO2 has therefore soared, reaching 60 euros at the end of August. Consequence: polluting energies have become even more expensive to produce, since for each tonne of CO2 emitted, you have to pay three times the usual price.

It is therefore all these reasons – strong demand for gas in the face of an inconsistent supply, rising CO2 prices – which lead electricity to reach new heights in Europe. For the moment, despite the increases in certain tariffs, France remains relatively spared. “Regulated prices make it possible to cushion market increases,” recalls Maxence Cordiez. There is also the Arenh mechanism (regulated access to nuclear electricity), which allows alternative suppliers to obtain supplies at a very low price from EDF. “

“Believing that the transition will be smooth is a total illusion”

But elsewhere, such as in Spain, households sometimes have to deal with bills that have increased by 62% in a year. In an emergency, the Spanish government had to announce this Tuesday a reduction in taxes on electricity and a reduction in VAT, in order to lighten the bill a little. For Bernard Keppenne, these tensions are a harbinger of what will happen elsewhere in Europe: “To believe that the energy transition will be smooth is a total illusion. It will be expensive, because it will be necessary to invest heavily. To make it socially acceptable, it will obviously require financial support for the less well-off households ”.

The French government, which keeps in mind the episode of the “yellow vests”, is perfectly aware of this. This summer, when the EU presented its climate plan, the Minister of the Economy, Bruno Le Maire, assured: “we will not make low-income households pay the cost of the ecological transition”. Brussels wants to extend the CO2 quota system to road transport, which could lead to an increase in fuel prices. The path that is emerging is narrow: on the one hand, respond to the climate emergency, on the other, find (financial) means to avoid a rise in social tensions and inequalities that the transition is sure to cause.

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