In a report published on Thursday 5 December, the Bruegel think-tank takes the view that a fall in energy costs can be expected in the European Union as the energy transition progresses. Nevertheless, political choices will determine the extent of this fall, which in the short term is unlikely to bring prices back to pre-crisis levels.
Cornall Heussaff, the author of this new publication devoted to the challenge of losing competitiveness to other industrialised economies, explains that Europe’s high energy prices stem from its dependence on imported fossil fuels. However, the ongoing energy transition is changing the dynamics of costs, with the integration of more renewable energies.
In the short term, however, the overall cost of the system is only likely to change in line with the dynamics of the global fossil fuel market, with a wave of new LNG export capacity expected from 2025 onwards. These new capacities should bring down the price of gas in Europe, “but not to the levels that existed before the energy crisis, and not below those in the United States”, insists the analysis.
Over the long term, as clean electricity becomes the dominant energy carrier, variable fuel costs will become less and less of a determinant of energy costs. Conversely, the share attributed to fixed costs will increase as a result of the significant capital investment required to deploy renewable energies.
According to Mr Heussaf, political choices can reduce the overall costs of these investments, for example “by encouraging the efficient implementation of renewable energy projects or by directing investment in the network in such a way as to provide maximum added value”.
At present, in order to take action in the short term, political decision-makers need, according to the analysis, to spread the costs of the system fairly between industrial consumers, businesses, households and the taxpayer. This can be done by revising energy taxation, by revising the European directive on energy taxation (see other news) or by making changes at national level “to tax gas more than electricity, for example”.
In the medium term, policymakers should encourage flexible electricity demand to improve system efficiency. Secondly, and more structurally, final costs for consumers could be reduced through coordinated investment at EU level and greater cross-border interconnection.
To see the analysis: https://aeur.eu/f/epa (Original version in French by Pauline Denys)