Electricity prices in France and Europe: How does it work?
Energy buyers in Europe sometimes witness price increases that are difficult to understand. The price of natural gas, which is used in the production of electricity and heat, is almost ten times more expensive today than it was a year ago. Electricity prices, linked to gas prices, have also risen in recent months, raising questions about how energy prices are set.
How is the price of electricity determined in Europe?
Electricity prices are determined based on supply and demand. When large amounts of electricity are produced but demand is low, prices tend to fall. In contrast, when production is low and demand is high, prices rise in real time, creating high peaks in value.
As for the demand, it varies depending on the weather conditions in the place of consumption and the time of day. Indeed, the peaks of demand are usually in the evening, from 18:00 to 21:00.
As for supply, it will depend on the amount of energy production associated with the availability of power plants. Each European country has its own energy mix combining renewable, nuclear and fossil fuels. Depending on the type of energy, the production offer will be different. For example, for wind turbines, it will depend on the availability of wind. Finally, the cost of electricity from gas or coal also affects the cost of raw materials.
These prices are not uniform across Europe. France is part of an interconnected market that includes Luxembourg, Belgium, Germany and the United Kingdom.
How much does electricity cost in France?
In France, we receive our electricity bills on an annual basis. They consist of:
- Energy consumption kWh
- Transport manager fees
- Costs of the distribution network of the energy network
- VAT and taxes imposed by the government
- Support tax for renewable energies
Why are the prices of natural gas and electricity rising?
The reason for this price increase is the fear of seeing Europe run out of gas this winter. Russia has reduced the flow of gas to Germany and other countries. These discounts force gas suppliers to buy gas at higher and more volatile prices in the spot market.
In many countries, gas and electricity prices are closely linked, and this relationship adds to Europe’s difficulties. Although there are several ways to generate electricity (coal, nuclear, hydroelectric, wind, and solar), the price of natural gas has a significant impact on electricity pricing because gas generators are paid the most to start when electricity is supplied. the grid needs more electricity.
This attitude makes Europe more vulnerable to Russia’s energy weapons. Unlike the United States, which has a large surplus of natural gas to export, but thanks to shale drilling, Europe must import most of its gas, with Russia traditionally providing about a third. Long before Russia’s invasion of Ukraine in February, gas and electricity prices in Europe rose on supply concerns.
What are governments doing to prevent the crisis?
A number of measures have been implemented in order to prepare for changes in electricity prices. Some European Union countries, such as Germany and the Netherlands, are rushing to fill up their gas storage to protect against potential Russian gas cuts this winter. Governments have also taken steps to secure additional supplies of liquefied natural gas from the United States. Finally, they encouraged companies in the energy sector to build new terminals, often with public funding, to receive refrigerated fuel.
England, Spain, France and other countries provide financial assistance to consumers. However, these benefits are not sufficient to offset the increased costs faced by households. Many politicians and energy leaders are calling on governments to do more.
For more information on the price shield used to regulate electricity prices in France, find our dedicated article.