One year’s reprieve: the French government has decided to protect households from the ups and downs of the electricity market for another year by extending the tariff shield introduced in October 2021 to limit bill increases until the beginning of 2025, whereas it was only planned until the end of 2023.
“I give us two years, by early 2025, to get out of the shield on electricity,” because of rates that remain “very high” compared to the pre-crisis situation, announced Friday the Minister of the Economy Bruno Le Maire, on LCI. This situation is not likely to change in the near future: electricity contracts for delivery in the first quarter of 2024 are now trading on the forward market at 367 euros/MWh, which is more than double the prices in Germany (164 euros/MWh) or Italy (182 euros/MWh).
This tariff shield, announced in the fall of 2021 by then Prime Minister Jean Castex at a time when energy prices were beginning to rise sharply, is expected to cost the public purse 45 billion euros this year. In addition, there are other energy subsidies for households (fuel, oil, wood …) and for small and medium-sized enterprises.
Despite these expenses, the government keeps proclaiming the end of “whatever it takes”, preferring to talk about targeted aid that is not intended to be permanent. The production of electricity by EDF remains “a little below what we could expect, so that makes rates that are even higher,” said Bruno Le Maire. The exit of this shield will therefore be gradual “so as not to worry” the French.
The market price of electricity remains high, particularly in view of questions about the proper functioning of EDF’s nuclear power plants, which have been affected by production difficulties, notably due to corrosion problems. The increase in the regulated electricity tariff, capped by the state through subsidies, was 4% in 2022 and 15% in 2023. “It is in itself a good thing for consumers, it is a positive measure, since it will avoid an explosion of electricity rates,” reacted to AFP François Carlier, of the consumer association CLCV.
Not gas
On the other hand, the Minister believes that the extension of the gas tariff shield is no longer justified because natural gas prices have fallen significantly since the unprecedented peaks of 2022, caused by the war in Ukraine and the end of Russian gas exports to Western Europe. The shield will stop “from this year”, announced Bruno Le Maire. For gas, “there is no reason to maintain the shield,” said Bruno Le Maire, because of prices that “have returned to the pre-crisis situation, at 50 euros per megawatt hour.
Given this decline, “the shield remains in place until the end of the year to protect the French, but will only be activated if gas prices were to rise sharply again on the markets,” said the office of the Minister of Energy Transition Agnès Pannier-Runacher.
On Friday, the reference price for natural gas in Europe was around 40 euros per MWh, which is the level for the summer of 2021, and which was already about double the average prices of previous years. As for electricity, Carlier says that if the shield had been lifted as planned at the end of 2023, the regulated sales tariff, which concerns a majority of customers, would have exploded regardless of market trends, because of the way it is calculated by the Energy Regulation Commission.
Not penalizing consumers and with them growth while preserving public accounts, the equation is delicate for the government, as summarized by Mr. Le Maire in an interview with the Courrier Picard: “It is imperative to accelerate the deleveraging of France with a goal of reducing in 2027 the public debt of 4 points higher than what was planned last year,” he explains. Among the levers mentioned, the exit of the tariff shield and the end of the exceptional energy vouchers.
