The provisional peak in the electricity price is behind us for the time being. However, the market remains very restless. In the meantime, politicians are calling for intervention in the electricity market. Experts warn that careful thought must be given to the consequences.
The electricity market remains highly volatile. Monday, August 29, the Epex Spot peaked at €630,06 per MWh. A sharp decline started last week. On Sunday, September 4, the price dropped to €250,69 per MWh. The decline only seems short-lived. Today (Tuesday 6 September) the Epex is again at € 426,85 per MWh.
The gas price currently weighs heavily in determining the electricity price. Last week, the European Commission hinted that this may have to change. That sounds like a good idea, but in practice it is difficult to implement. Supply and demand on the electricity market must be in balance. In order to achieve that supply, the cheapest means of production to generate electricity are first used. Traditionally, this is nuclear energy. The mix is further supplemented with electricity generated by solar panels, wind turbines, coal and gas plants. The most expensive means of production ultimately determines the price of the electricity on that day. After all, supply and demand must be in balance and if the market price is lower than the cost price of the most expensive supplier, it will not deliver and a shortage will arise in the market, causing the price to rise until equilibrium is restored. Either because of a loss of demand or because more expensive production methods become profitable. Border fees or marginal pricing that principle is called, which, incidentally, applies to many more raw materials.
Dilema
Now that consumers and businesses are struggling to pay their energy bills, it is tempting for politicians to intervene in that market mechanism. France, for example, works with maximum energy prices. According to several experts, this is a worrying development. Energy companies suffer huge losses as a result and ultimately have to be kept afloat by the taxpayer. Setting maximum prices is therefore a form of symptom control. The underlying cause is not resolved. There is not enough affordable energy on the European market. The extremely high energy prices are an important incentive to save on energy and thus create air on the energy market. You could also invest in cheaper energy sources. These are both directions that only have an effect in the longer term. Scaling down or completely shutting down production, as is now happening in some sectors, is undesirable from an economic perspective. In that sense, it is logical that politicians also want to take measures for the short term. The choices that have to be made are not free and ultimately end up with the taxpayer. That is why experts emphasize that all pros and cons must be carefully weighed and that there is no room for hasty and poorly calculated false solutions.