August 29, 2008
European Energy Retail: EDF Price Increases Will Not Spur Competition
The French government has recently agreed for state-owned energy supplier EDF to increase its prices for both business and residential customers. This has led some analysts to point to the relatively large increase by French standards as a sign that the French government is trying to move energy prices towards a market-based price, and eventually remove regulated tariffs.
While the price changes are significant for commercial users, reaching 8% for large businesses, the agreed increase is a mere 2% for residential customers. In an era of high energy inflation, marked by the recent spike in oil prices, a 2% rise in price will not affect the pressures that EDF and competing suppliers are under. However, EDF and the French government are bound to the public service agreement of 2005 which states that prices cannot increase above inflation for domestic customers until at least 2010. With increases in energy costs for generators well above the general inflation rate on the whole, highlighted by the increasing wholesale cost of gas, the incentives for suppliers to compete in the French market are becoming smaller, not greater.
The expected fractional increases of regulated prices in France are likely to bring the country further away, not closer to, market prices and de-regulated pricing. A widening disparity between what customers pay and what they should be paying will increase the burden on the taxpayer, in terms of the subsidy that they are providing to energy users.