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Shock Announcement on Electricity Prices

The French government has announced a further rise in domestic electricity prices of 3% from January 2011, with more on the way.

The news comes on top of an increase of 3.4% last August, making a total average increase of around 6% in six months.

One this occasion, it is not a general inflationary increase in tariffs, but in the tax households pay with their electricity bill towards the development of solar power.

The Contribution au Service Public de l'Electricité(CSPE) isa tax which funds the development of alternative energy sources, as well as the electricity social tariff for low income households.

The rate of this tax is currently €4.50 per MWh (Mega Watt/hour) consumed, which will rise to €7.50 in January. It translates into a 3.2% increase for the average household, from €93.1 to €96.1 per year.

This is the first increase in the CSPE since 2005, but it is unlikely to be the last, as the finance bill going through the French parliament provides for an increase on an annual basis.

EDF 'Subsidy'

EDF have claimed that an increase in the tax was necessary due to the growth in solar power electricity generation in the country, which has risen from 81 MW (Mega Watts) at the end of 2008 to 850 MW in 2010.

The growth of this market has been heavily stimulated by the tax credits of 50% (now reduced to 25%) for the installation of solar panels on residential properties, and by the generous wholesale price that EDF is obliged to pay solar power electricity producers to sell into the national grid.

Households who have installed photovoltaic solar panels are able to sell electricity to EDF for around 10 times the normal EDF production cost, although there is to be a substantial planned reduction in the price over the next ten years for new installations.

EDF state that their cost of subsidising electricity generation from solar power was €1.6 billion in 2009, a sum they state will increase to €2.75 billion in this year.

Nevertheless, it seems this did not prevent EDF paying dividends of around €2 billion to its shareholders last year. The leading shareholder is the French government, who own 85% of the company.

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This article was featured in our Newsletter dated 02/11/2010

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