Gas and electricity: why falling markets won’t lower your bill?

Comfort is observed in the gas and electricity market. Since the end of December, wholesale prices in Ukraine have returned to pre-war levels. This week, a megawatt-hour (MWh) of gas for a month’s supply traded at around €70 on the TTF index, the benchmark for the European market. This is 4-5 times less than the record of 340 euros achieved in August last year. The spot price of electricity (for immediate delivery) also fell following this, stabilizing between €100 and €180, even making short-term incursions into negative territory (down to €-4.37 per MW in the morning of January 1).

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The main factors of this decrease: the rise in temperature and the decrease in consumption. Gas stocks are at their highest level and consumption in France in the second half of 2022 has decreased by about 15% compared to the same period in 2018. Electricity has decreased by about 10% in a year. Destruction of demand, which obviously drives prices down. With the meltdown, the Electricity Transmission Network (RTE) also revised its supply forecast for January and downgraded the warning level, which tended to calm markets.

Waiting for a way out of the crisis

But, contrary to what you might think, this drop in prices will not result in a decrease in bills. First, because the phenomenon must be put into perspective. “Of course, prices are falling under the combined effect of suddenly rising temperatures and low consumption, but we remain at price levels three to four times higher than two years ago,” recalls Jean-Marc Dubreuil, partner at WattValue. Then, if the drop in spot prices is effective, it is not related to the prices of supply contracts at all. “The spot price is the price I pay for immediate, overnight delivery. As the temperature is high, demand is at an all-time low and prices are falling. But it is the prices of the futures markets that make sense and are linked to the prices of the supply contracts,” emphasizes Julien Tedde, managing director of the Opéra Energie brokerage.

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However, these futures prices also fell, but to a lesser extent. As for gas, prices are around €67 per MWh in 2024 and around €57 in 2025. Prices for electricity start at 225 euros per MWh in 2024, 171 euros in 2025 and 134 euros in 2026. signal: markets expect the crisis to end. However, we remind here again that the average forward price of electricity between 2000 and 2020 was 50 euros. Even during the crisis of 2008, its maximum limit was 93 euros. That’s why we are double,” recalls Julien Tedde.

No discount is expected for individuals

Then the situation is not quite the same depending on whether we look at the private market or the professional market. “Individuals benefit from regulated sales tariffs (TRV) for gas and electricity, realistic benchmarks for determining supply prices. The formation of this regulated tariff incorporates various factors, including market prices, but over a long period of time, with weights. Therefore, it does not reflect what is currently happening in the markets,” analyzes Remy Rousset, co-founder of Lite, a company that helps individuals reduce energy consumption.

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In particular, for now, price levels remain well above TRVs frozen by the tariff shield. Therefore, for regulated gas and electricity sales rates to fall, market prices must fall more and remain low for a very long time. “For example, it makes no sense to calculate as long as electricity futures prices remain above 100 euros per MWh. Therefore, there can be no question of any reduction for households,” said Julien Teddé.

Revision of contracts for companies

For professionals, the situation is more subtle. Because their offers at the market price, in fact, reflect the evolution of the courses, while the rates are fixed at the time of signing the contract, for a period of one, two, or even three years. “A company that signs a gas supply contract in November commits to the price determined in November for a period of one or even two years. This is normal because the supplier buys this gas ahead of the markets to hedge,” says Rémy Rousset. And unlike an individual who can put his contract up for competition whenever he sees fit, he can only leave it after it expires, even if prices drop in the meantime.

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Therefore, the current reduction in prices will only benefit specialists whose contracts expire in 2023 and who will negotiate the price in the coming weeks. At the very least, their increased workload will be less severe than it was in 2022. Salvation could come from the Elysée for professionals who contracted last year, when prices were at their highest. The President of the Republic has indeed demanded this Thursday, January 5, that suppliers renegotiate all contracts with prices above 280 euros per MWh. It remains to be seen how the executive will make them do it. Suppliers were received at Bercy this Friday afternoon.

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