Panic on the energy market in Europe.

French electricity prices exceeded 1,000 euros per megawatt hour (MWh) on Friday August 26, while they reached around 85 euros/MWh a year ago.

For next December specifically, the megawatt hour of French electricity is already trading at more than 1,600 euros, an extraordinarily high level.

All European countries are hit by this surge, especially Germany, with prices that exceeded 850 euros on Friday against 85 euros/MWh a year ago.

The Czech Republic is not to be outdone: its Prime Minister announced on Friday that his country would convene a crisis meeting.  

This situation resonates with the words of Emmanuel Macron, who called on Wednesday for "unity" and advocated "energy sobriety" in the face of the end of "abundance".

In this context, the markets are not the only ones to panic: tens of thousands of customers are migrating from private electricity suppliers to the public energy company, EDF, and its fixed rate.

But given this explosion in electricity prices, the bill could be high for consumers, including for holders of a regulated tariff.

Interview with Nicolas Goldberg, energy expert at Colombus Consulting.  

France 24: What is the wholesale price of electricity? 

Nicolas Goldberg: These are blocks of energy traded on the markets to constitute the supply of customers over a given time, which can be one year, two years or three.

In reality, there is not one wholesale electricity price but several.

There is, for example, the daily price for the next day which is indexed on the last central called.

And there are other products: the price over a week, a month or a year.

These prices are the result of anticipation effects: they are set on the day's prices for the next day.

However, suppliers buy different products and mix them to define its price.  

The wholesale price of electricity in France exceeds

1,000 euros per megawatt hour (MWh) for 2023, against 85

euros a year ago.

What is a record? 

The prices are completely insane.

By comparison, with the Hinkley Point EPR reactor, England gave a guaranteed electricity resale tariff of 92.5 pounds/MWh [valid for 35 years from 2012].

Everyone said it was expensive to pay.

And at the moment, the calendar prices (over one year) are between 900 and 1000 euros/MWh, therefore nine times the price guaranteed over 35 years for an EPR in the United Kingdom.  

What are the reasons for the surge in wholesale prices? 

The market is extremely nervous because there are far too many uncertainties.

Long-term wholesale prices are set by anticipation in relation to short-term wholesale prices.

As short-term prices soar, there is an anticipation effect with longer-term prices.

And above all EDF has, at the moment, with its nuclear fleet, long-term problems.

The nuclear fleet faces corrosion problems, [a phenomenon detected at the level of the elbows of the safety injection pipes, which allow the reactor to be cooled in the event of an accident, and which results in small cracks].

>> To read also: Gas, electricity: what scenarios in France in the event of a shortage of energy?

Because of this, EDF's reactors are not producing as much as expected [only 24 of EDF's 56 nuclear reactors are operating at the moment] and therefore EDF is often forced to buy back on the market what it had planned to produce and what it does not produce.

Thursday, EDF announced that the corrosion will take longer to be repaired than expected.

EDF will therefore place its production predictions in a low bracket, which increases calendar prices.  

Russia, which was 

Europe's leading gas supplier, is drastically reducing its exports to the EU due to sanctions linked to the war in Ukraine.

Is this drop in gas flows another factor in the rise in electricity prices? 

Yes, because the war in Ukraine has a huge impact on these wholesale prices because it has increased gas prices.

Indeed, the price of gas is quite structuring in wholesale prices.

For the day's tariff for the next day, it is the last central called that sets the price for everyone so if this central decrees that the price of gas is going to be, for example, 500 euros/MWh, the price will be the same for all other plants.

However, in Europe, we still produce a lot of electricity from gas and hydraulic energy often sets its price on gas.

This is why we end up with prices that increase everywhere when the price of gas increases.  

What will be the consequences of soaring wholesale prices for consumers? 

It will be felt on the customer's invoice, but it's difficult to know how.

The bill will not be multiplied by 20 tomorrow.

When a consumer signs a contract with a supplier, the latter sells electricity at a price that runs over time.

But when the supplier renews the contract and reassesses the level of the regulated price, it sets it according to market prices.

However, the regulated prices change every February.

So it is difficult to know how it will evolve by February.

But in short, if there is a price increase, consumers who have chosen the regulated tariff will see it on their bill in February.

With the prices we are starting to have, in February, we could have an increase of between 30 and 40% in regulated prices.

But I don't see the government letting that happen.

I don't know if they will renew the tariff shield and how.

[Implemented on October 1, 2021, the "tariff shield" freezes the applicable scales for regulated gas sales tariffs to prevent individuals from bearing too high a price increase].

The state could put an end to it and replace it with aid.

Because originally, if the State created a tariff shield, it was temporarily and aimed at smoothing it over the long term.

But it is clear that today, the "tariff shield" is no longer temporary.  

Apart from a potential price increase, are other effects feared

? 

Yes, because in winter, there are real tensions on the electricity supply with the possibility of failure.

We have a deficit in electricity production in France mainly because the nuclear fleet produces less due to corrosion of the reactors and maintenance.

So if it is cold this winter, and at certain times there is a deficit between production and consumption, we can use three levers: industrial cuts - some industrialists are paid so that at any time, the electricity is cut -;

a drop in voltage on the network;

and the last lever, but which should be avoided, is targeted cuts.

It's about cutting a distribution start for two hours and then starting again elsewhere, and so on.

Industrial cuts have already happened a few times in recent years and we could use this lever this winter.

But we never went further.

We have never had recourse for the moment to a general reduction in tension.

This would not be very serious compared to the use of the third lever, which amounts to cutting off electricity to consumers.  

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