Price of electricity in France and England
I wanted to find out why my electricity bill here in England is so much higher than that of my relatives in France. Take for example my bill for period ending 31 May 2022: it charges me 29.332p/kWh (= 0.3 euro); my sister’s bill charges her for the period ending 28 April 2022 0,1374 euro/kWh. The French price does not include tax, VAT in particular, nevertheless the difference is clear. Bills in England are going up 100%, in France not more than 15% next year.
Yet, we are supposed to have a European wide liberalised interconnected energy market, Macron is an avowed liberal, so why the huge differences?
Let’s have a look at how the liberalised system works.
A liberalised system breaks up state monopoly of electricity production, distribution and sales into separate companies (like the railway privatisation that breaks up the rail network, the rolling stock and other bits into separate companies that have somehow to work together.) This is called ‘vertical disintegration’. So you have the producers, who sell on the wholesale market who in turn sell to retailers who then sell to households. Industry buys from the wholesale market. The distribution network, national grids of pylons, wires etc have by law to be made available to all suppliers.
The other factor in the calculation of price is the need to import energy to make up national production. Then there is the question of deciding a pricing system that applies to the whole of Europe, regardless of how a particular country produces its own power.
The aim of market orthodoxy is a Europe-wide energy market with one selling price for electricity, alongside national energy production with different cost prices. Companies buy and sell electricity at a daily auction across Europe. That is how the electricity market works. It uses ‘marginal pricing’ to determine electricity prices hourly for the following day. The production cost of gas fired generators is higher than the cost of other generation types. Because gas fired generators are the crucial factor in meeting demand, they set the market price.
Or as the FT puts it:
“Pricing in Britain’s wholesale electricity market, like on the continent, is based on “short-run marginal costs”. Every electricity generator puts a bid in but the daily market price is set at the level that ensures there will be sufficient supply to meet demand. In other words, the price is always set by the most expensive plant — usually a fossil fuel-fired one — required that day. In practice, this means gas-fired power plants, which still account for just under 40 per cent of Britain’s electricity supply, set the power price more than 80 per cent of the time, according to academics at University College London.
The system worked when Britain’s electricity system was dominated by coal, gas and nuclear but renewable sources such as wind and solar, which run very cheaply once built, are rapidly growing their market share. Renewable generation, including biomass, accounted for 43 per cent of the generation mix in 2021, according to government data.”
In 2008 an energy stock exchange for Europe was set up, and it caused only small increases in retail price to start with, until the recovery from Covid caused a surge in demand in summer and autumn 2021. Prices started to rise rapidly, followed by Russia reacting to sanctions by decreasing supply and the present end of Russian supplies and resulting shortage.
The result is very high prices for consumers and for industry; another result is that electricity producers using renewables and nuclear, both cheap methods once set up, sell their energy at prices much higher than cost price, resulting in high profits. These unexpected profits should be taxed or even removed and the money used to even out costs. This is what Liz Truss is refusing to do.
Yet both Liz Truss, Kwarteng and Johnson claim to want an end to this pricing system:
This is Liz Truss to the House of Commons 8/9/22:
“Renewable and nuclear generators will move on to contracts for difference, to end the situation in which electricity prices are set by the marginal price of gas. This will mean that generators receive a fair price that reflects their cost of production, further bringing down the cost of this intervention.”
Decoupling electricity from gas, “That’s the suggestion from the Business Secretary who spoke earlier during a session of the Business, Energy and Industrial Strategy Committee about the government’s plans to provide further support for customers struggling to pay their energy bills.
He [Kwasi Kwarteng] said: “One of the things we are very keen to do in BEIS is to look at the pricing mechanism in the electricity market because it cannot be the case forever that we can link directly our electricity prices to gas prices when gas is only a portion of the electricity generating mix.”
A few days ago, the Prime Minister highlighted the same issue and touted it as one of the problems of the current energy system.
Boris Johnson said: “That is frankly ludicrous. We need to get rid of that system, we need to reform our energy systems as they have done in other European markets.”
29 June 2022
If that is what they want, what is stopping them? The opposition, occupied with more important matters than sordid calculations of everyday costs, is not putting the pressure on them that they need.
So, why can France offer cheap electricity? It produces its own electricity and does not need to import. The main electricity producer was majority state owned and is now 100% state owned. This enabled it, since 2007, date of the opening to the market, under Sarkozy, to offer households and small businesses a choice between keeping the ‘historic’ regulated price (Tarif Réglementé de Vente (TRV), or ‘Tarif Bleu’) or signing a market contract with EDF or a new provider. Needless to say, my sister’s bill is Tarif Bleu. And it informs her clearly in a prominent paragraph under her address that ‘As a customer with regulated tariffs, you can subscribe to a market offer at any time, free of charge, with the supplier of your choice. Compare offers for free on energie-info.fr.’
It looks as if France has managed to keep its energy sector out of the market system to a large extent, to the benefit of its population. It has avoided the break up between producer and retailer: EDF both produces and sells to households. It can fix its price without regard to the market. The market however has a share in that consumers have the choice to go with other providers who offer market prices. ‘New’ market providers are not allowed to offer the historic regulated rate that is specific to EDF and other historic providers. The other effect of the market is that EDF is forced to sell a proportion of its cheap electricity to its competitors at cheap prices.
There are problems with French electricity however, in fact listening to them, they are going to starve and freeze the same as here.
Recently France produced 71% of its electricity from nuclear, and 20% from renewables. Both are much cheaper than gas and coal. Yet the price of electricity has gone up appreciably since 2021.
There are various reasons for this.
*The remnant (nearly 10%) has to be imported on the European market where the price is high.
*Of 56 nuclear power stations, (built between 1973 and 1986) only 24 are in production, the rest being closed due to maintenance problems. One power station was closed altogether although it was functional (Fessenheim in Eastern France) in 2020. France produced 25% less nuclear electricity in 2021 compared to previously. There has been a ‘loss of competence’ and a loss of skills in the industry, according to experts (le Monde 22 November 2019).
The 2022 drought reduced the production of hydroelectricity, as well as causing problems for the cooling function in nuclear power stations.
Some gas and coal fired power stations were closed altogether to reduce carbon emissions.
The French government is taking measures to counter the price increases:
*It will provide ‘energy cheques’ to help low income households weather this, that is 12 million cheques.
*In 2021 it capped the increase at 4% for the following year, and at 15% for 2023, that is for households, council housing, small firms and small villages.
*it reduced the tax part of electricity bills.
The government completed its ownership of the main producer, EDF, from 83% to 100%.
Added to the problems listed above is the effect of the European market on French electricity production, distribution and sales, and the effect of the anti-nuclear Green International.
An ex director of EDF explained this in Le Monde (22 November 2019:
“The era of the enthusiastic pioneers of the “crash program” following the panic of the oil crisis , during which leadership was clearly identified and supported at the highest level of the state, has given way to a time of rentiers, fussy about details and competing to capture the rent. Obviously, you can blame a coordination problem. Who is in charge, between EDF, the Nuclear Safety Authority, Siemens and the CEA? Without constant and assertive support, nuclear power will wither away.
Having the “Green International” of the new global ecological left against you at the same time as the financial short-termism of Wall Street is no small matter for this temple of the productive real economy and heavy high-tech. Not forgetting our German neighbours, for whom the French success is a permanent challenge to their alleged technological superiority; it also highlights the inter-German contradictions and disputes, which make the immeasurable extra cost of renewable energies pay for the very cheap and polluting lignite and the dependence on Russian gas. Fortunately, we still have China, a good student of French technology at Daya Bay and Taishan, which, in its Confucian conception of a harmonious world, has understood that nuclear energy is the only real substitute for coal, oil and gas in power plants.”
EDF is forced to sell its production at low cost to its competitors. This reduces its income and prevents investment, in particular in the renewal of nuclear power stations and the building of new ones.
Let us go back finally to the question of the liberal pricing of electricity and gas, where the cases of Scotland and of Spain are instructive.
The case of Scotland
Ian Blackford (SNP) said during the same debate on energy presented by Truss as above:
“ We need to reflect that energy bills are rising in an energy-rich Scotland. The damage done by the UK Government’s choices—choices that have been imposed on us—make the choice about Scotland’s future ever clearer. Scotland is energy rich, so we simply should not be facing an energy emergency. It may surprise some in this House, but Scotland produces six times more gas than we consume and almost 100% of our entire electricity production comes from renewables. That is not attention-seeking, I would say to the Prime Minister; these are the facts. Scotland has the energy, but we just simply do not have the powers. We are stuck in a UK market that prices our electricity on the basis of the price of wholesale gas, and the power to change the system lies with Westminster. ‘
And it was noted in an FT article (2/10/22) discussing decoupling electricity from gas that:
“Locational pricing” is designed to address another big anomaly in the power markets: under the existing arrangements wind farms in Scotland are paid hundreds of millions of pounds a year to switch off when they are producing too much power for the local grids to handle.”
The case of Spain
Because of its geographical position, Spain is not connected to the European power grid. They are not part of the European energy exchange. They have managed to negotiate with the European Commission that the price of their electricity is not connected to the price of gas, from May 2022.
The case of Spain is particular because of geography, but the case of Scotland highlights the absurdity of the market system for electricity. It is unbelievable that Scotland has to pay the so-called market price when it is self-sufficient in cheap energy. The market is clearly not working: it is not providing households or businesses with energy they can afford. To solve the problem the market relies on the state: the state is part of the equation. Without the state society would break up under the strain. This was obvious during the 2008 financial crash. How can anyone believe in the market anymore? It’s like children setting off on an adventure, knowing their parents are there in the background to rescue them. Except that in the case of markets, the adventure involves millions of people, who are more and more reluctant to be part of the ride and might welcome a strong state. As we know, there is more than one form of a strong state.