Energy and Prices - trying to make it clear Energia e Prezzi - un po' di chiarezza

Energy and Prices – trying to make it clear

Electricity prices always in the spotlight, with their constant increase which is listed as one of the main factors of impoverishment of families on one hand and as a deterrent to economic recovery on the other.
Countries that have invested significantly in renewable energy, such as Germany and Italy, but also Spain, France, the UK and Romania, see continuous internal debates on the impact that the contributions to renewable energy have had and continue to have on the dynamics of energy prices for the end users.

But how electricity prices have increased in recent years? and what were the main drivers of these increases? Let’s try and see it.

The statistics available to the European Commission by its Eurostat, show the current state of consumer prices in the old continent.

Thumb Eurostat 01 Energy and Prices   trying to make it clear

The increase in the price of electricity, especially for a home user, it is evident in all the Countries of the Euro area and also within the wider circle of the 27 EU countries.

Evolution of EU 27 and EA electricity prices for household consumers 2012s2 EUR kWh 300x151 Energy and Prices   trying to make it clear

When analyzing the Italian case it can be noticed how the price paid by the end user has increased from € 0.192 / kWh in 2009 up to € 0.230 / kWh in 2011.

An increase of almost 15% in a period of two years in which, inter alia, Italy experienced its economic recession with the industrial demand that could not have contributed to the growth of electricity prices. Indeed .

But how are compounds these prices ? Are they in line with the data reported by the Italian Authority ?

The  Italian Energy Authority has published , for the same period of time, values ​​that seem not exactly in line with those provided by Eurostat.

For the fourth quarter of 2011 , for example , the total before tax is shown equal to € 0.1649 / kWh , maximum figure recorded during the year. Even adding the VAT , and not considering that in the three previous quarters prices are even lower , you do not get the values ​​reported by Eurostat for the period.

It ‘also interesting to observe the composition of the final price , summarized in the pie chart below:

2011 costoenergiadomestica 300x196 Energy and Prices   trying to make it clear

If compared with the same data of the previous year:

2010 costoenergiadomestica 300x242 Energy and Prices   trying to make it clear

It appears quite clearly the reduction in the contribution of procurement costs (it was 64.4% in 2009) and the increase in ” general system costs .”

What are the general system costs? They are divided into components “A” and component “UC ” .

The tariff components “A” cover the expenses incurred in the general interest of the electrical system (such as research costs , the cost of promoting the use of renewable energy sources , etc. . ) And these are identified by the Government by decree or by Parliament by law.

The components “UC” cover further elements of cost of the electrical service ( such as, for example, equalization) identified by the Authority.

The rates relating to tariff components “A” and “UC ” are set by the Authority and are updated periodically based on the needs of revenue . Are calculated , in general, with payments denominated in euro cents per sampling point and in euro cents per kWh and are fully paid by the end user .

So far it seems that the benefits of reducing procurement costs were largely balanced by the increase of the general system charges, even to the point to  if not up to cancel at all the positive effects,.

Is that for real? Let’s try to observe the progress of the Single National Price (PUN ) .

 Energy and Prices   trying to make it clear

The average price of PUN , after the collapse of 2009 due to the intensification of the crisis, is given a slight but steady increase . This happens despite the volumes have been recorded in flexion.

What exactly is the SNP ? The PUN is the purchase price for electricity that forms in the Italian electricity market and is the result of auctions that cover the energy demand expected hourly with electricity offered by different operators.

In the auctions  the cheapest deal is the one accepted first (it is first dispatched) and then, gradually , the “packets ” more expensive until all the requests are satisfied . To determine the hourly rate that applies to all systems, the most expensive source is selected, the so-called “marginal”. The inputs of cheap energy , excluding the most expensive sources other extreme, instead they greatly lower the cost of the whole package of deals.

For clarity, in case of excess of supply over demand , not programmable renewable energy (i.e. solar and wind) are sold to the market at ” zero cost ” just to ensure their dispatching priority .

It happened recently in Italy, on a mid-June Sunday, that the SNP (PUN) has for the first time reached the value “zero”, for two hours.

This means that all the energy Italy needed at that time had been provided by non-programmable renewable energy ( solar and wind) , placed on the market at ” zero cost ” .

And here it comes the first question: how is it possible that with the impressive increasing  of the contribution of renewable energy to the National energy balance, and of the not programmable in particular, it has not been recorded an even slight decrease in PUN in these past years ?

This can be explained only by the increase in prices of the marginal components . This means that it has been bought at a higher price that energy produced by conventional systems .

In conclusion, the increases in the bill for end users , at least for the Italian market , does not seem entirely justified by the burdain of the general system charges (incentives ). In addition, it should be strongly needed a greater clarity on how it is determined the purchase price of the marginal components of energy and why, despite the release of massive amounts of energy produced at low cost, there hasn’t been a significant decline in the price PUN .

The pre-announced cuts to renewables, then, appears to be used to cover the targeted economic reintegration of sales volumes lost from traditional sources without inter alia, to ensure savings in the future.

In fact, the conceivable decrease in the “electricity bill “, obtained by cutting the incentives to renewables, do not seem to consider the indirect effects .

The British Government , for instance, has estimated that

The government estimates the impact of that ‘ green tax ‘ like this : without it , by 2020 prices will rise by 18% – with it , prices will rise by 5%.

This indicates clearly that in the lack of incentives for renewable energy cost of the electricity bill for the end user would be likely to rise even more as linked to the price of gas , expected significant increase in the coming years .