University of Montpellier dean recommends ‘return to more centralized governance’

Pr François Mirabel, Dean of the Faculty of Economics of the University of Montpellier, is the author Deregulation of the electricity and gas market: main economic issues (Editions Presse des Mines), currently being updated.

LA TRIBUNE – Do the economic crisis linked to the war in Ukraine or the maintenance of the French nuclear fleet alone explain the sharp increase in electricity prices?
Francois MIRABEL – It cannot be denied that the situation connected with the war and certain industrial commitments partly explains the increase in the cost of electricity. However, there are more structural reasons. They are related to the way the market was liberalized in 2000 following the transposition of a European directive from 1998. Electricity is a public service, just like telephony. However, if the liberalization of telecommunications was good for the consumer with a significant reduction in prices, the same is not true for electricity. Certain characteristics made it difficult to compete, as EDF had a competitive advantage, mainly due to its nuclear generation capacities. In this context, in order to allow new entrants to penetrate the supply market where the “incumbent” had a monopoly, the mechanisms for determining the electricity tariff were partially and gradually differentiated from production costs in order to stick rather to market prices at time T, depending on supply and demand. The prices are thus yoged from one hour to the next hour of the day without any connection to the actual production costs… We have multiplied the profit centers artificially without any economic sense. It falls under the dogma originally established by Article 90 para. 2 of the Treaty of Rome* (Establishing Treaty of the European Union, editor’s note) in 1957.

Despite everything, France considers price growth limited for individuals and VSEs/SMEs. Why?

This is because the state has introduced a tariff shield for all regulated sales tariffs (blue tariffs, note), which now only apply to small businesses and individuals. Financing this shield is very expensive for the state, but it does not concern ETI and large groups that pay for electricity based on a single market price.
How to get back to more consistency?

Let’s remember that EDF was founded in 1946 because at that time there were a very large number of electricity companies that were difficult to make work in a coordinated way… Today, however, we are limited by the choice of competition policy. In my opinion, it would be necessary to return to a more centralized way of managing electricity in each European country by adopting a tariff based on average production costs, rather than the last MWh produced, as is the case at present. In case of strong demand, as the European grids are interconnected and coordinated, we could ask for priority for the least polluting plants and offer the best performance at the expense of the fuel, gas or coal-fired auxiliary plants that each activates. today for its part, which increases prices.

Would a return to monopoly be a good solution in your opinion?

It would be hypocritical to present things this way because the European treaties do not allow it. In fact, we were thinking about competition before we were thinking about European energy policy. Today we pay the price.

What acceptable alternative to the current situation can be imagined?

In my opinion, a single buyer per country should offer producers a long-term purchase price. This is what the Energy Regulatory Commission practices (CRE, editor’s note) for renewable energy. Why is this not the case with other sources? Great Britain made this choice of centralization, for example, when it ordered the EPR at Hinkley Point from EDF. The UK has secured its supply tariff for a period of 35 years! It can be an inspirational model…

* “Enterprises responsible for the management of services of general economic interest or having the nature of a fiscal monopoly are subject to the rules of this agreement, in particular the rules of economic competition, to the extent that the application of these rules does not conflict with the law. or indeed the particular mission assigned to them. »