Why the prices of electricity and gas are exploding in Europe

The gas and electricity markets are racing at the moment. The rise in prices is linked to several factors, including the fact that gas-fired power plants need a little time to adjust their production to changes in demand.

« We reached historic levels », Reveals to Numerama Julien Teddé, CEO of Opéra Énergie. For several months, gas and electricity prices have been soaring in Europe. And experts in the energy sector are worried about the consequences that this will have on the bills of individuals, but also of companies. ” The price of gas on the wholesale market has tripled since mid-2020. And that of electricity has undergone an almost equivalent increase », Explains the director of Opéra Énergie.

In France, this trend has resulted in successive increases in the regulated gas tariff: 10% in July, 5% in August and 8.7% in September. The regulated electricity tariff is likely to increase next year. But what is happening in the energy markets?

The price of electricity is soaring in Europe. // Source: Qimono / Pixabay

Ignition delay

With regard to gas, the situation can be explained in large part by the delay that the supply puts in adjusting to a variation in demand. ” Shutting down or restarting gas plants takes time », Emphasizes Julien Teddé. In 2020, when activity slowed down sharply with the implementation of lockdowns in various countries around the world, to fight the covid crisis, gas demand plummeted. ” Asia is an area that greatly influences the price of gas. When it is growing strongly, it needs more gas, and that pushes the prices up. Conversely, when it consumes less, it lowers prices. », Specifies the director of Opéra Énergie.

This is what happened last year: the price of gas hit a very low level, which prompted some gas plants to take a break. It is exactly the opposite which is happening at the moment: economic activity is picking up again, demand for gas with it, but the power stations have not yet all restarted their production as a result. As a result, demand is greater than supply, which pushes gas prices up.

This trend in the gas market is itself a factor driving up the cost of electricity. ” The wholesale price of electricity is not calculated based on the average price of production, because electricity cannot be stored, explains Julien Teddé to Numerama. If at any time T, nuclear power, hydraulics and the rest only allow us to produce 95% of the electricity demanded on the grid, we have to start a last plant that will provide the last five percent that we need. And this plant will only agree to start production if the price is attractive. »

It turns out that at the moment, the last plant injecting electricity into the grid is a gas plant. The price it asks is therefore high, because it pays for the gas which allows it to produce electricity more expensive now. ” Gas plants have also seen other items in their budgets increase, because they have to pay money in compensation for CO emissions.2 they generate, this is called CO quotas2 », Emphasizes Julien Teddé. However, the price of these CO allowances2 has also increased: ” from 7 euros per tonne, at the end of 2017, to more than 60 euros at the moment », He specifies.

The price of CO2 increased

This is a pretty good sign for the climate: the more CO2 emitted is expensive, the more companies will work to reduce their greenhouse gas emissions. But this rise in the price of carbon is fueling the rising costs of running a gas plant. To agree to restart production during a peak in demand, it will therefore tend to demand a higher price.

French consumers are however partially protected from this increase by a mechanism called ARENH. ” With this mechanism, part of the invoiced price is not calculated according to the wholesale price of electricity, but according to the historical production price of electricity by the French nuclear fleet, explains Julien Teddé. It doesn’t protect us 100% from the price hike, but it does partially compensate for it. “

However, electricity prices are expected to rise by around 10% at the start of the year. The government has also decided to distribute energy checks, an aid of 100 euros which should help the poorest households to cope with the rise in prices.

Photo credit of the one:
Pride1979 / PIxabay

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