Insee Focus · February 2023 · n° 290

Electricity prices for business customers are expected to rise sharply in 2023

In 2021, the economic recovery after the Covid-19 pandemic led to a strong increase in the demand for raw materials and energy, especially electricity, and thus raised their price. At the same time, the shutdown of nuclear reactors (16 out of 56 were shut down in December 2021) and the tensions surrounding the Nord Stream 2 gas pipeline led to a drop in electricity supply, particularly in France. As a result, spot market prices and forward market prices rose sharply throughout the second half of 2021.

Customers not covered by the regulated rate usually negotiate the terms of their contract with their electricity supplier for a full calendar year, sometimes for two or three years. Contracts may include fixed prices, seasonal modulation, and/or indexation to the spot market. Thus, the evolution of the amounts invoiced depends mainly on the evolutions of the forward markets of the previous year for the fixed prices and on the evolutions of the spot market of the moment for the variable parts indexed on it.

To limit the impact of the price rises recorded since mid-2021 on the futures and spot markets on consumers' electricity bills, the government introduced a shield in February 2022 which caped the rise of the after-tax regulated electricity rates to 4% in 2022 (Box 1). In 2022, one third of professional sites with a contract of less than 36 kVA (C5 segment) benefited from the regulated rates.

At the end of February 2022, the start of the war in Ukraine led to a new rise on the spot markets (+488.7% for the Epex Day ahead spot market year-on-year) and in the forward electricity markets. Consequently, the amounts invoiced to professional customers have increased significantly (+27.1% in March 2022 year-on-year) (figure 1), though this increase remained very limited for those who had taken out a low-power contract (segment C5), some of whom could benefit from the regulated rate (figure 2).

The beneficial effects of the increase in the ARENH quota, put in place by the government to widen access for alternative suppliers, at a regulated price, to electricity produced by EDF's historic nuclear power plants, were mainly passed on in the form of reimbursements on the bills of professional customers. These reimbursements were spread out over the whole of 2022, thus limiting the increase in bill amounts throughout the summer of 2022.

By the end of the summer of 2022, half of France's nuclear reactors were down and forecasts for the winter of 2022/2023 were pessimistic, with Russian gas deliveries dwindling and leading to fears about supplies for the end of the year. This led to a strong rebound in spot electricity prices to an unprecedented level (+563.9% for the Epex Day ahead Spot market in August 2022 year-on-year) and therefore in the prices charged to business customers (+16.4% in August 2022 year-on-year).

Wholesale market prices then fell until October 2022, but remained high, partly due to the mild temperatures in France. From November 2022 onwards, spot prices returned to their 2021 level, but prices on the spot and forward markets remained more than twice as high (+126.9%) as a year earlier, due to the high prices of forward contracts taken out in the summer. In the end, the prices of electricity sold in December 2022 to professional customers were 21.7% higher than in December 2021.

According to the forecasts of electricity suppliers at the end of December 2022, estimated from responses to a dedicated survey (sources), the prices of electricity supplied to professional customers should increase by 84% in 2023 as an annual average (figure 3), excluding the "electricity shock absorber", "gas and electricity bill payment assistance window" and "cap for VSEs" measures (see Box 2), and in the absence of new measures that would be taken during the year or discounts from suppliers and/or renegotiations. In comparison, the increase was 21% in 2022 according to the same suppliers. The increase is expected to be higher in industry and agriculture (+92% in 2023) than in the market services (+77%) and non-market (+66%) sectors. In 2022, it was already in industry and agriculture that the rise in prices was the strongest (+30%), followed by the non-market sector (+26%) and the market services sector (+11%). The prices paid by companies in the market services sector and organisations in the non-market sector were similar (figure 4).

Still without taking into account post-survey governmental measures, electricity prices are expected to double in 2023 as an annual average for large companies with a high-voltage C1 or C2-C3 contract, as prices in these segments are more subject to spot market prices than in other segments. The rise would be 80% for customers with a high-voltage low-voltage contract (C4) and 38% for those with a lower-voltage contract (C5). In 2022, prices jumped by +43%, +22%, +14% and 7% for the C1, C2-C3, C4 and C5 segments respectively. Prices for C4 are expected to become the highest in 2023, overtaking those for C5, which are partly under the regulated rate (figure 5).