Energy buyers in Europe are witnessing price increases, which are sometimes difficult to understand.
Natural gas, which is used to produce electricity and heating, costs almost ten times more today than a year ago.
Electricity prices, linked to the price of gas, have also exploded in recent months, raising questions about how energy prices are set.
How is the price of electricity set in Europe?
Electricity prices are determined by supply and demand.
When a large amount of electricity is produced but the demand is low, prices tend to fall.
In contrast, when production is low and demand is high, prices rise in real time, forming high peaks in value.
Regarding demand, it fluctuates depending on the weather at the place of consumption, and the time of day.
Indeed, the peaks in demand are generally in the evening, between 6 p.m. and 9 p.m.
With regard to supply, it will depend on the quantity of energy production, itself linked to the availability of power stations.
Each European country has its own energy mix, combining renewable, nuclear and fossil fuels.
Depending on the type of energy, the production offer will vary.
For example, for wind turbines, it will depend on the presence of wind.
Finally, the prices of electricity from gas or coal are also impacted by raw material costs.
These prices are not formed equally throughout Europe.
France is part of an interconnected market comprising Luxembourg, Belgium, Germany and the United Kingdom.
What is the price of electricity in France made up of?
In France, we receive our electricity bills most often with an annual frequency.
They consist of:
Energy consumption in kW/h
Transport manager fees
The costs of the distribution network of the energy network
VAT and taxes set by the government
The tax for the support of renewable energies
Why do natural gas and electricity prices keep rising?
The fear of seeing Europe run out of gas this winter is the cause of this price increase.
Russia has reduced gas flows to Germany and other countries.
These discounts force gas suppliers to buy gas in the spot market at higher and more volatile prices.
In many countries, gas and electricity prices are closely linked, a relationship that has compounded Europe's difficulties.
Although there are several ways to generate electricity (coal, nuclear, hydroelectric, wind and solar), the price of natural gas has a considerable influence on the setting of electricity prices, since gas generators are most often paid to come on stream when a power grid needs more electricity.
This relationship makes Europe more vulnerable to Russia's energy weapon.
Unlike the United States, which has a large surplus of natural gas to export, thanks to shale drilling, Europe must import most of its gas, with Russia traditionally supplying around a third.
Well before Russia's invasion of Ukraine in February, European gas and electricity prices rose on supply concerns.
What are governments doing to stem the crisis?
Several actions have been implemented to prepare for changes in electricity prices.
Some countries in the European Union, such as Germany and the Netherlands, are rushing to fill up gas storage facilities to guard against a potential Russian gas cut-off this winter.
Governments have also taken steps to secure additional supplies in the form of liquefied natural gas from the United States.
Finally, they have encouraged companies in the energy sector to build new terminals to receive chilled fuel, often with public funding.
Britain, Spain, France and other countries provide financial assistance to consumers.
However, these aids are not sufficient to offset the increased costs that households are facing.
Many politicians and energy leaders are calling on governments to do more.
For details on the price shield that has been put in place in France to regulate electricity prices, find our dedicated article.
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