TRUE OR FALSE. Electricity prices: is opening the market to competition a failure to lower prices?

TRUE OR FALSE.  Electricity prices: is opening the market to competition a failure to lower prices?

Rise in the price of electricity. In July, the price of a kilowatt hour rose 20%, according to the price index published by the Selectra energy comparison site. For the average 10% of the most expensive offers, in particular among private distributors that compete with EDF, the increase in one month is even dizzying (29.44 euro cents on July 1 compared to 45.46 euro cents on August 1, that is, +54%). .

This price explosion has caused a jump Fabien Gay, senator of the PCF for Seine-Saint-Denis. On Twitter, the elected communist lashed out, on Thursday, August 18, “liberalization of the energy sector [qui] I had to lower the prices”. So, is Fabien Gay right in considering that the opening of the energy market to competition has been a failure?

In an exchange with Agnès Pannier-Runacher, Minister for the Energy Transition, the senator clarified the subject of his criticism: Regulated Access to historic nuclear energy (Arenh), the mechanism that has made EDF’s opening to competition permanent. To understand this system, we must go back to 2010, when the Nome law (New organization of the electricity market) was launched, which governs the Arenh.

Pursuant to a European directive that imposes the implementation in France of real and fair competition between electricity providers, the Nome law undertook twelve years ago to challenge EDF’s dominant position in the energy market.

Although the liberalization of the sector began in 1999, the public operator still has in 2010 a historical advantage over all its potential competitors: “A nuclear fleet largely amortized, that is, paid for by the French since the 1970s”, execonomist Jacques Percebois, a specialist in energy, told franceinfo. “EDF’s competitors couldn’t compete because they were selling electricity produced from oil or gas. However, electricity from fossil fuels was more expensive than nuclear electricity.summarizes the director of the Center for Research in Energy Economics and Law (Creden).

To offset this advantage, the Nome law introduced the Arenh system, which requires EDF to sell a quarter of its production (nearly 100 terawatt hours) to its competitors at cost price. The incumbent energy company is thus forced to sell a large part of its nuclear electricity to the competition at a regulated price that rises from March 11 to 46.20 euros per megawatt-hour, a broken price in relation to the market, where the megawatt is listed -hour August 22 to more than… 600 euros.

In exchange for this subsidized price, the competing operators have agreed to pass on the discount granted in their rates to the consumer. With the aim, according to a press release from the Council of Ministers published in 2010, “that any supplier is able to offer a competitive price to its customers”.

But for Fabien Gay, the operators “don’t play the game” and no “reflect” nor the tariff reduction that the Arenh gives them. The senator regrets, for example, having received several complaints against Ohm Energie, a private distributor that “will increase [le prix] of their subscriptions by 60% in September“, according to him. The purchasing power law passed in July has further improved the conditions offered to the private sector by increasing Arenh’s volume from 100 to 120 terawatt hours.

Contacted by franceinfo, Agnès Pannier-Runacher’s cabinet does not notice, for the moment, any significant deficiencies in the Arenh. According to “The Energy Regulation Commission (CRE)”the agency responsible for monitoring the energy supplier market, “The vast majority of consumers are protected, as suppliers have transferred the price shield and the provision of additional volumes from Arenh in 2022”. However, the Ministry for Energy Transition specifies that “The minister asked the CRE to examine cases broadcast on social networks (to) ensure compliance with the rules of the game.

For his part, François Joubert, CEO of Ohm Energie, defends himself before franceinfo against any “fraud” but confirm a “high price increase, around 60%”. The pattern of this electrical justifies this increase in “market conditions” never seen since “thirty years”with a price per megawatt-hour that reaches “1,000 euros for this winter” (In its latest report published in July, the CRE declares a price per megawatt hour at 918 euros for the first quarter of 2023).

“Since August 2021, prices have skyrocketed”confirms Jacques Percebois, due to “economic recovery in China and around the world” which leads to a “high electricity demand”. without regard to “Nuclear is not there” with “Half of the power plants closed” in France, in particular due to maintenance problems. To this we must add the war in Ukraine that raises fears of a risk of gas shortage, used for the production of thermal power plants.

However, the Arenh system is not intended to fully protect private providers from price fluctuations in the energy market. The demand for Arenh by the operators, around 160 terawatt hours, is in fact higher than the legal ceiling set by the public authorities (120 terawatt hours). In fact, the Arenh, with its reduced rate, only covers “50% of consumption” clients of private providers, explains Jacques Percebois. This therefore forces these operators to supply half of the wholesale market, where prices have skyrocketed. But while the current inflation is largely due to market conditions, it also seems that the Arenh has not performed as expected due to some effects. “perverted”according to the economist.

In 2011, the declared objective of the public authorities is not only to promote the emergence of alternative suppliers to EDF, but also to encourage them to become energy producers, in particular by investing in new power plants or other electricity producers. But, for the most part, “Distributors have not played the game. Apart from Engie and Total Energie, private operators have not increased their production capacity”laments Jacques Percebois.

This lack of investment explains “that today we are below the capacitymesays the economist. “We can clearly see that the competitors [d’EDF] they are simply traders who buy and sell their electricity without installing production power, which would have made them true market players”comments for his part Alain André, Secretary General of FO Energy and Mines.

Another damaging effect: Arenh’s volume increase from 100 to 120 terawatt hours, confirmed during the purchasing power law vote in July, will be very costly for EDF. The public provider must now buy the additional 20 terawatt hours requested on the market, at a price of 257 euros per megawatt hour. To then be forced to resell them to their competitors at the regulated price of 46.20 euros. To cover its losses, EDF is claiming 8.34 billion euros in compensation from the state, according to a press release published on August 9. A situation “crazy woman” that makes the Arenh a system “completely abstruse”Judge Fabien Gay.

The Ministry of Energy Transition, however, estimates that the increase in Arenh’s volume has “allowed to limit the amount of energy purchased by alternative marketers in the markets and thus reduce the increase in the electricity bill of their customers”. The fact is that, by not developing their own production capacities, EDF’s competitors, which are in some way subsidized by the historic French supplier, are contributing to the current electricity shortage and thus to price inflation.

“When you resell the same product twice through intermediaries, you have [mécaniquement] a price increaserecalls Erwann Tison, a liberal economist at the Sapiens Institute, who wonders, like others, about the merits of opening this market to competition.


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