Energy is a major EU economic policy. It fuels growth in living standards and is the backbone of a healthy economy, but governments must be more transparent about where customers’ money really goes, writes Hans ten Berge.
Hans ten Berge is the secretary general of EURELECTRIC, the association of the electricity industry in Europe.
If Europe does not get its energy policy right, ultimately the economy as a whole suffers. Policymakers must take particular care to avoid policy-induced inefficiencies and market distortions that unnecessarily push up the costs of providing electricity and raise energy bills for Europe’s customers. In doing so, they will allow customers to regain trust in the energy sector and play their part in tomorrow’s new energy world.
The costs of energy policies have increasingly moved to the forefront of energy policy debates in recent years, with particular emphasis being placed on affordability for customers. How do costs make themselves felt in the final price that electricity consumers pay?
This year, EURELECTRIC released an updated version of its 2014 analysis of household electricity prices in Europe, which gave a better picture of the composition of electricity bills and the variations in bill components over time. Taking into account the costs of energy supply and network and policy support, and by separating taxes from policy support costs, the analysis showed just how much governments influence the price that customers pay.
The average price that European households pay per kWh of electricity rose from 17.8 euro cents in 2008 to 20.5 euro cents in 2014 (+15%). Out of this total, in 2014, the average EU household electricity bill was made up of 37% energy and supply costs, 26% network costs and 36% taxes and levies. Between 2008 and 2014, taxes and levies underwent the highest increase of all bill components, going up 47%. Network costs also increased by 17.7% over the analysed period. This increase is most likely linked to the necessary upgrades in transmission and distribution networks to adapt to the increased level of renewable resources. Nevertheless, the network’s share in the final price was almost unchanged, accounting only for 0.7% more than in 2008 (26% in 2008 against 26.7% in 2014).
Overall, this means that the average European consumer pays a little over a third on taxes, levies, fees and charges. The analysis also shows that bills are often carriers of policies that are unrelated to electricity, with customers financing pension schemes or even national broadcasters via their electricity bills.
Alas, while bills are becoming a vehicle for diverse policy objectives often unrelated to electricity supply, customers are not being offered enough information as to why their bills are being driven up. Policy support costs are often concealed behind acronyms or couched in technical terms, hard for the customer to understand.
The European Commission continues to focus its attention on empowering the customer to manage energy consumption in a more proactive way, and in doing so, to make end users part of the game. But increasing electricity prices considerably limits the opportunity for end-users to profit from lower wholesale energy prices. For the customer to be responsive and willing to participate in the market, a clear price signal is needed.
As the power sector becomes more sustainable and electricity is progressively decarbonised, the burden placed on the final price by governments could jeopardise its role. Governments must be more transparent on what goes into customers’ bills and raise customers’ awareness on what they pay for. Standardised reporting obligations of price statistics can also help in enabling an informed debate on energy prices at both national and European levels. If we want to achieve decarbonisation at the lowest possible cost to all customers, policy-makers across the EU have to rethink the strategy behind energy costs and prices.