Bulletin No39 Octobre 2023 The European Council, representing the governments of the Member States of the European Union, has approved an agreement outlining a reform of the electricity market. This conclusion of long negotiations and very strong tensions between the French and German authorities is presented by the Minister of Energy Transition Pannier-Runacher as a great victory for France.
A market that works well… but on the heads of consumers
The question of reforming the electricity market has been raised for more than a year now after the surge in electricity prices which forced the various governments to take emergency measures (tariff shield, price cap gas for electricians, direct aid to businesses, etc.). Spain and Portugal were authorized to deviate from market rules in 2022 with a cap on the price of gas intended to produce electricity. The German government opposed attempts to open discussions on a reform of a market which clearly was not working... or too well?
To our knowledge, no operator has manipulated the electricity market to increase prices. The rise in prices is part of the market mechanism itself. The market price of electricity is established at the level of the most expensive offer.
Indeed, if to ensure the supply of electricity (which cannot be stored), for example, 100 billion kWh are needed, producers will offer their production at different and increasing prices depending on the production techniques used. If 99 billion of production is offered at price p1 and the last billion at the higher price p2 then the market price will be established at p2. For a simple reason: if this last billion is missing, the supply will be in default and the network balance in danger. It is therefore necessary to pay well p2 to ensure the balance of supply and demand.
For this reason, market prices are aligned with the price of kWh gas. And the price of gas had already doubled when the Russian-Ukrainian war broke out. The shutdown of French nuclear reactors was indeed fortuitous and curiously, across the Rhine, voices were raised to denounce the unwelcome dysfunctions of French nuclear power. Clearly, the electricity market price worked as expected: it reflected the cost of the last kWh produced, that is to say the electric kWh produced from gas. The cost of gas supply represents 2/3 of the total operating cost of gas power plants.
And as the European Union has established a single market, prices have increased uniformly in Europe, by contagion because if you can sell a kWh more expensive in Germany, why sell it in France and therefore the French buyer must match high prices to obtain their electricity supply. The uniqueness of the market creates a strange European coherence. Is it necessary to specify that exchanges on the market make it possible to direct financial flows towards speculators who do not produce, nor will ever produce, a kWh. And who doesn't need to cheat for that!
If consumers – in particular the world of work – bear the burden of this well-oiled functioning of the market, on the other hand, in addition to speculators on the market, the other big winners in this game are the foreign national gas companies and the oil companies (which sell also gas like Totalenergie) and… those which produce electricity without using gas (nuclear and renewable energies).
Heartbreaking ideological revision and a new type of Franco-German alliance
Recognized as "war profiteers", these producers, who have not chosen to produce electricity with gas, are inflicted, according to the terminology of the European Commission, with an "inframarginal rent contribution" ( CRIM). The Commission proposes with the CRIM to confiscate all revenues generated beyond a ceiling on the price of electricity on the market (initially €180/MWh, in France €90/MWh for nuclear and €100/MWh for wind power). If the nuclear producer sells a quantity of electricity Q at 100 €/MWh, it returns to the public authorities (100-90) x Q.
Clearly, the European Union decides to put profits under control: a real conceptual revolution. It should also be noted that the European Union has decided to exercise this terrible decision on “virtuous” producers, known in the jargon as “low-carbon”, that is to say with low greenhouse gas emissions.
But this is only expedient. President Macron, while the extremely tense discussions continue in Brussels, declares outright that he intends to take control of the price of kWh. Little pressure on the German neighbor who does not intend to dismantle the market. In the eyes of the German government, its advantage lies in the transmission of costs in a uniform manner in Europe and as the last kWh produced in Germany will for a long time be the gas kWh (closure of lignite, coal and nuclear power plants) we might as well share the joys of the market, it depends on the relative competitiveness of German industry vis-à-vis its neighbors.
German employers do not share this vision because they are alarmed by Washington's development plan (Inflation Reduction Act, a spending plan to support the development of energy transition techniques worth $350 billion), intended to attract industrial investments. and some German companies are showing interest. Their problem is not German industrial preponderance in Europe because if energy in Europe becomes expensive, industrial capital can look elsewhere as can their financial support. And this explains the positions taken by major German bosses (in particular of energy supply companies and networks that cannot be easily relocated): very clear calls to order to the German government to cease its policy of undermine French nuclear power.
In short, the French authorities benefited from the concerns of German employers.
The agreement outlines future changes in the French electricity landscape
So what did France get? Guaranteed sales prices for the production of future nuclear reactors under construction from 2035 (normally…) and for those of existing reactors whose operation will be extended.
This price guarantee could be achieved by two methods:
- private contracts between producer and buyer (with delivery and price commitment), entitled in the jargon PPA (Power Purchase Agreement, in French, agreement for the sale of electricity, quite simply!);
- a compensatory guarantee system binding the producer and the public authority. In this case, the public authority sets a guaranteed price and if the market price is lower, it reimburses the difference to the producer and symmetrically the producer pays the excess revenue beyond this ceiling in the opposite case. This system, already widely used in wind projects, is called CfD (Contract for Difference, in French Accord compensatoire).
As these were the two methods favored by the French authorities, the quarrel between public entities and EDF over the price of nuclear MWh (which would guide the guaranteed price level and the negotiations in bilateral contracts) is perfectly explained. Obviously, EDF management recommends a guaranteed price higher than that targeted by the government.
The French government is also concerned about the end of Regulated Access to Historic Nuclear Energy (Arenh). Established in 2012, the Arenh obliges EDF to supply its competitors on request with 100 billion kWh at a fixed price. The Energy Regulatory Commission raised this quota when market prices rose to protect… EDF's competitors and their customers.
The guaranteed price system, which is emerging, could replace the Arenh: if the guaranteed price is lower than the market prices, competitors contact the market and the State compensates EDF for the difference and vice versa if the price market price is higher than the guaranteed price, EDF pays the difference to the State which reimburses EDF's competitors for the difference.
In this scheme, a mystery remains: what are EDF's competitors really for? This Byzantine construction makes it possible to redistribute rent to capital and, adjacently, to despoil it from the world of work. It is still “ market ”, reduced in risks, transferred to the community.
The measures on the regulation of the electrical energy market, however complex they may be, reflect a simple and fundamental thing, that of the contradiction between the profoundly social character of electrical production and the realization of capitalist profits. To resolve this contradiction , it is therefore the State which essentially finances heavy investments over long periods and is called upon to play the role of regulator. As a State of capital, it gives the advantage to the realization of profits and the accumulation of capital and this in a context of internationalization of fierce competition between capitalist monopolies. The question of choices in energy matters, of their financing, is therefore obviously a major issue in the class struggle. It is from this class point of view that we place ourselves in fighting for the constitution of a public system of production and distribution of energy through the total nationalization of the sector, under the control of the workers and the Nation.