Why is the price of electricity increasing?

Why is the price of electricity increasing?

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On February 1, regulated electricity prices were increased again. No need to follow the information to see it: the bill continues to rise among all French people, and inevitably, many are wondering.

So why is the price of electricity increasing? Can we expect a decline in the years to come? How does the electricity market as a whole work? We set out here to answer all these questions.

What is the most recent increase in electricity prices in France?

The last increase in the regulated electricity price dates from February 1st. It is based around these figures: an increase of 8.6% for normal rates and 9.8% for off-peak/peak rates.

On the other hand, subscribers to the “peak day demand reduction” offer are not spared from the increase. The price increased by 10.1% for these 400,000 people, who committed (against a preferential price) to reduce their personal consumption on peak days (when it is very cold for example).

Finally, for small businesses, the increase oscillated between 5.2 and 8%. As a reminder, the previous increase dated from August 1, 2023, when the regulated tariffs for electricity sales (or TRVE) increased by 10%.

How can we gauge these increases in the price of electricity?

These percentage increases won’t necessarily speak to many people. So the Ministry of the Economy was able to offer some invoice simulations, just to get a better idea.

For example, for a person living in an apartment heated by electricity (i.e. 4.2 MWh consumed per year), the increase corresponds to €8.30 more per month. For four people in a house heated with electricity, this monthly increase increases to €17.80 additional to be paid per month.

On the gas side, the increase is less significant. It is necessary to count €4.5 extra per month for one person in a heated apartment or €7.6 per month for four people in a house.

For professionals, the observation is all the more damning. Thus, for a bakery benefiting from the regulated rate during peak/off-peak hours, these are an additional €116 required per month for an annual electricity consumption of 90 MWh.

Why is the electricity price increasing?

So, what kind of mysterious phenomenon can we consider to be the cause of these increases? It is simply a matter of the gradual end of the tariff shield put in place by the Castex government in the fall of 2021. The latter aimed to protect the purchasing power of the French by reducing a tax on electricity in order to avoid excessive increases in prices (fears in particular due to of the war in Ukraine).

Concretely, this means that the government had at the time reduced the lower final consumption tax on electricity (or TICFE) to one euro per MWh, instead of the 32 euros before the crisis. Thus, in the space of a few months, the State (via taxpayers’ taxes) covered 37% of electricity bills.

increase in electricity prices

However, today, this tax is gradually increasing, which largely explains this increase in prices for all French people. On February 1st, TICFE rose to 21 euros per MWh. In February 2025, it will return to normal, which means a further increase in prices in just under a year now.

How is the cost of electricity determined?

In addition to taxes like the TICFE which interests us here, other factors affect the price of electricity. For example, theproduction or storage costs, transport costs, or even the price of gas and the cost of CO2 quotas. In other words, prices are generally directly linked to the trend of the European wholesale market.

Thus, at the start of 2021, the tariff was €50 per MWh. Then, at the end of the year, it reached €222 per MWh, before finally soaring to more than €1,000 in the summer of 2022. It is because of these cost increases that the tariff shield was launched by the government.

Energy price 2023

Finally, in 2023, the wholesale market price fell again (it was €102.3 per MWh on average in June 2023). Following this decline, the government is gradually restoring the normal level of the TICFEwhich explains the price increases among the French, despite the drop in wholesale prices.

What is the overall increase in the price of electricity over the past 2 years?

In February 2022, the regulated rate increased by 4%. Then, in February 2023, the increase was 15%. In August 2023, an additional 10% increase was noted. In other words, over two years, the overall price increase between 2022 and 2023 was more than 40%to which we must add these new 8/9% from last February.

The trend is therefore obviously upward, and the revision of the regulated tariff during the month of February should once again be the scene of a new increase.

Can we expect another increase in the coming months?

According to the current Minister of the Economy Bruno Lemaire, the increase in the TIFCE on February 1 is the last of the year. On the other hand, on February 1, 2025, “we will return to the situation which was that before the tariff shield” he was then able to conclude. In other words, prices should then undergo a further increase.

Furthermore, the government is committed to ensuring that the review of the regulated electricity tariff (every February 1 and August 1 of each year) never exceeds 10%including all taxes.

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