*Article edited by News Tank and translated from French into English by E&C Consultants.
City of Mériadeck, Bordeaux, France. © Julien BRIAND
"A major difficulty in France is the Arenh mechanism. It creates enormous uncertainty for the final customer (...). In 2025, it is due to end, but we don't know if it will actually be stopped, if it will be extended, or if a new mechanism will be created. But industry and business need long-term visibility," David Lamoulie, consultant at E&C, a consultancy specialising in energy risk management, procurement, financial control, sustainability and data management, told News Tank on 17/01/2023.
Paris, France - January 19 2023. At the European level, a gas market correction mechanism capped at €180/MWh will be put in place from 15/02/2023 to limit market volatility. "Before the crisis, we were at €20/MWh of gas; today we are at €60/MWh. The €180/MWh ceiling, which is interesting in the short-term, seems to me to be too high to be really useful. It does not call into question the €60/MWh price, which does not seem to me to be viable for the European economy," adds the expert. David Lamoulie answers News Tank's questions.
What are the problems concerning the functioning of the electricity and gas markets, in France but also at EU level, revealed by the crisis?
On the French and European markets, the end customer (industrial or business) has a choice of supplier and can negotiate on the forward market, generally +3 years, or be exposed to the spot market, which fluctuates.
The French gas market is, as for other European countries such as Germany, Belgium or the Netherlands, indexed on the TTF index, which is supposed to reflect the supply/demand ratio at EU level. The French electricity market works like the EU one, i.e. the electricity price follows the gas price because it depends on the last power plant applied, which is often a gas power plant. Power stations have to maintain competitive tariffs to be applied, which normally limits prices; but the end of Russian gas supply in 2022, following the war in Ukraine, has created a boom and a lot of volatility. On the French forward market, in August 2022, the forward price for 2023 even exceeded 1000 €/MWh. Today, we are below €200/MWh for 2024.
At the European level, it works a bit like the French market. The crisis has revealed differences between countries, either in terms of the price per MWh or in terms of the reaction of suppliers. In several European countries, for example, many suppliers have called contracts into question in order to increase their prices via the safeguard clause, whereas this phenomenon has remained marginal in France.
What developments are planned in France?
For some years now, some people have been talking about necessary reforms, but nothing is seriously envisaged. A major difficulty in France is the Arenh mechanism. It creates enormous uncertainty for the end customer who does not know how much energy will be available at the capped price, currently 42 €/MWh. In 2022, a law was supposed to increase the ceiling from 100 TWh/year to 120 TWh/year in 2023. But in the end nothing was decided.