Electricity Market: Functioning and Reforms in Progress

Electricity is both a commodity and a public service. As a commodity, it has a price set by the market, and a distinction is made between the wholesale and retail markets. On the wholesale market, which is European due to cross-border interconnections, there is an hourly price per megawatt-hour (MWh) (1 MWh = 10 ³ kWh). On the retail market, suppliers (44 in France at the beginning of 2023) sell electricity that some of them produce themselves, and most of them buy on the wholesale market. These contracts are known as Market Offer Contracts (OM), and are generally annual, sometimes multi-year. But there are also tariffs set by the public authorities for small customers, generally domestic and sometimes professional, who so wish. This regulated sales tariff (TRV) exclusively concerns customers with a subscribed power not exceeding 36 kVA (kW), and is offered by the incumbent operator alone, in practice EDF and the ELDs (local distribution companies, i.e. municipal utilities).

While electricity generation and supply are indeed open to competition (there are several producers alongside EDF, such as Engie and TotalEnergies, and numerous suppliers, most of whom are not producers), this is not the case for electricity transmission and distribution, which are natural monopoly activities, meaning that access to these infrastructures is regulated. A natural monopoly is an activity with a high proportion of fixed costs, duplication of which would lead to destructive competition. It would be inconceivable to duplicate an electricity distribution network in a city, when a single network would enable us to benefit from economies of scale. Tolls for access to these essential infrastructures are set by an independent regulatory commission (CRE, Commission de régulation de l'énergie). In France, RTE is responsible for transmission and Enedis for distribution (both subsidiaries of EDF). In practice, the price per kWh incl. tax is made up of three components, each accounting for around a third, but these proportions vary from year to year: the cost of supply, network access tolls and taxes.

In 2022, wholesale electricity prices exploded in Europe, mainly due to the dizzying rise in the price of natural gas, but not only, and many observers fail to understand the link between the two prices, even though the proportion of gas used in electricity generation in France is low (less than 10%). In 2022, the structure of French electricity generation was as follows: nuclear (62.7%), hydro (11.1%), wind and solar (12.7%), gas (9.9%), coal, fuel oil and biomass (3.6%). It should be noted that in 2022, the share of nuclear power fell due to the shutdown of part of the nuclear fleet (it varied between 69 and 75% in previous years), and for the first...