“There is no economically viable alternative to the European market”

Emeric de Vigan is head of electricity markets and former trader in the economics department at data analysis company Kpler. of EDF.

Le Figaro. – The Economy Minister on Sunday, January 21, announced an increase in electricity prices from 8.6% to 9.8% in February. How to interpret this choice? Was it inevitable?

Emerick de Wigan. – This decision seemed inevitable, as we were coming out of a crisis during which the state had protected the consumer. We cannot continue to increase public debt and EDF debt indefinitely: we have to return to pre-crisis taxation levels. We can only hope that this is the last increase.

What about Public Energy Service Liability? Are we paying for our bad choices today?

We are now paying for the disastrous nuclear availability of recent years. The exact responsibility for this situation is an endless debate: it falls both on EDF, which may err through arrogance by not listening to alarmist speeches, and on public authorities that have not invested enough in EDF. Instead of looking for the culprits, we should take a step back: the crisis is linked to Russian gas. Now, if France had nuclear availability like in the good years, in 2014 or 2015, France would probably be able to match its European neighbors. If EDF had good nuclear production, the gas crisis might not have happened.

Some, such as our columnist Loïk Le Floch-Prigent, former president of Gaz de France, see the price hike as a result of entry into the European market. What do you answer them?

The European market is in no way responsible for the price increase, even marginally. Those who oppose France’s membership of the European market are for political reasons. Looking only at the figures, on the contrary we see that this allowed us to import electricity in an optimized way this year, but also to export it. The question is whether we choose to export electricity and improve our trade balance and income for EDF, or not export so that our public prices are low.

The concept of indexing electricity market prices to gas is often criticized for being ignorant: there is no indexation to gas prices. It is a complicated method: in an electricity production plant, it is necessary to distinguish fixed costs (investment, personnel, etc.) from variable costs (required fuel). At the time of the EDF monopoly, some people like Marcel Boiteux showed the best way to allocate resources efficiently by ensuring that the right power plant is running at the right time in relation to consumption, which we call pricing at marginal cost.

The market’s only option is to return to monopoly: there is no third vote, or else what the government is currently doing, namely injecting public money when the price is deemed too high, and then correcting.

Emerick de Wigan

How do critics of this indexation system propose to pay the fixed cost of power plants? They suggest basing everything on average production costs, but then there is no more optimization, no more incentive to start the right plant at the right time. The only option for the market is to return to monopoly: there is no third vote, or else what the government is currently doing, which is to call the injection of public money when the price is deemed too high and then a correction. It is unstable and inefficient, and monopolies will return to that inertia. The market is the least bad solution, as its results show: it brought LNG cargo ships to Europe and reduced electricity consumption.

In 2022, Spain and Portugal have “exceptionally” left the European electricity market. What does that mean? Does this mean exiting the European electricity market? Should we follow in their footsteps?

Spain has shifted the cost of the crisis onto the taxpayer rather than the consumer, but this is similar to France’s measures. This policy encouraged Spain to export electricity to France, as the latter artificially lowered its price, which was almost counterproductive.

With the European market, the idea is to take advantage of each country’s geographical features. So, Switzerland has a lot of dams; We have nuclear power plants: long-term contracts were made where France exports electricity most days of the year, with the possibility of interruptions on certain days to cope with peaks in consumption in France, the Swiss operate their dams. Instead of attacking the concept of a European market, we should reintroduce this type of agreement. There are certainly difficulties, as not all European countries have the same energy policies, but energy Europe is far ahead of legislative or financial Europe.