Electricity Tariff Deficit: Temporary or Permanent Problem in the EU?

Transcription

1 Electricity Tariff Deficit: Temporary or Permanent Problem in the EU? European Commission DG Economic and Financial Affairs Unit B4 - Economic Infrastructure and Sustainable Growth Authors: Å.Johannesson-Linden, F.Kalantzis, E.Maincent, J.Pieńkowski Brussels 2015

2 Outline I. Background II. Mapping of electricity tariff deficit III. Drivers IV. Reforms 2

3 I. Background Evolution of retail electricity price and wholesale price ( ) Average domestic and industrial retail electricity price, wholesale price and crude oil price evolution Source: Eurostat, Bloomberg. Note: Weighted average of retail prices. 3

4 I. Background Retail price increase mostly explained by an increase in taxes and levies Electricity retail price change with contribution of the price components Source: Eurostat. consumption band IC (500 MWh < consumption < 2,000 MWh). Unit: Kilowatt hour. Excluding VAT Source: Eurostat. consumption band DC (2,500 KWh < consumption < 5,000 KWh). Unit: Kilowatt hour. Including all taxes and levies Price increase in energy component has been limited in a large number of Member States By contrast, high increase in taxes and levies in most countries 4

5 II. Mapping Emergence of a tariff deficit when the increase in costs is not reflected in end-user prices Mapping electricity tariff deficits in the EU (2013) Source: Commission Services Source: Commission Services 5

6 Common Factors II. Mapping Which are the common factors among countries with a deficit? Public finance deterioration High RES deployment High market concentration Economic crisis Retail price regulation Number of main retailers and their cumulative market share, % BG ES FR MT PT EU Cumulative market share GDP change in the EU and selected MS, BG EL ES FR MT PT EU Source: Commission Services 6

7 Tariff Deficit Occurring III. Drivers Which are the driving factors? Factors of Tariff Deficit occurring Macroeconomic Factors External Factors Energy-specific Factors Economic growth Public Finance Oil Prices Share of RES Concentration of the market Methodology (Logit approach) Y it = Binary variable based on the mapping i=eu countries (i=1-28) t= years (t= ), d i and g t= country and period specific effects X it =a set of explanatory variables that capture the macroeconomic, the energyspecific, external and institutional conditions Institutional Factors Price regulation Business environment 7

8 III. Drivers What's the reasoning behind their impact? GDP growth: major driver of electricity demand, which is used for calculating unit costs Retail Competition: represents the cost reflectiveness of retail prices Government effectiveness & quality of regulation: reflects the political influence on the decision making process RES penetration: reflects the increasing cost of subsidies to RES Government debt or deficit: restricts the fiscal space for support Consumption under regulated prices: captures the effect of distortive price regulation Crude oil prices: reflect the evolution of energy component of the electricity price 8

9 III. Drivers What does our model tell us about the probability of having a deficit? SPECIFICATIONS VARIABLES [1] [2] [3] [4] [5] [6] [7] [8] [9] Macroeconomic factors Government Deficit to GDP (% ) 1.63***.581**.698*** 1.34*** Government Debt to GDP (% ).189***.129* GDP (% ) -.819*** -.726*** -.925*** -.761** ** -.818*** Energy Sector Related Factors Share of RES (% ).323***.398***.399***.395***.338***.352***.267*.286***.281*** Retail Competition (# retailers) -2.15*** -2.7** -2.13*** -1.96*** -1.28** -1.53** *** -1.92*** External Factors Crude Oil Price.31***.254***.292***.189** ** **.192** Institutional Factors Consumption under regulated tariffs (% ).244* Governement Effectiveness -14.4*** -12.2*** -13.2*** Quality of Regulation -25.9*** -21.4***.Economic crisis and public finance deterioration have contributed to the tariff deficits in MS The increasing cost of subsidies to RES production, as well the crude oil price hike are among the factors that increase the likelihood of a tariff deficit Constant -24.6*** ** -27.1*** -26.3*** -14.1** -13.4** Random effect specification 5.44*** 5.18*** 5.23*** 5.16*** 4.93*** 5.06*** 4.62*** 4.41*** 4.5*** AIC BIC #Obs Note: *, **, *** Indicates significance at 10%, 5% and 1% confidence level. Price regulation, high market concentration and distortive political intervention are other causes of electricity tariff deficits 9

10 III. Drivers Which factor contributes most to the probability of having a deficit? GDP Crude oil prices Public deficit/debt Regulated prices Share of RES Retail competition 10

11 IV. Reforms Which are the consequences of the deficit? it has an impact on the financial situation of electricity companies, as it contributes through: Losses or low profits Lower credit ratings Higher cost of debt Countries without an electricity tariff deficit Countries with an electricity tariff deficit Variable NACE Code mean sd min max mean sd min max Generation Transmission Distribution Trade it has an impact on the public finance, as it contributes through: Contingent liability for public finance Higher cost of capital for countries 11

12 What kind of reforms MS have undertaken to tackle the tariff deficits? IV. Reforms Controlling the cost of support schemes to renewable energy and cogeneration by: Reducing the remuneration levels (i.e. FiTs) Reducing the period for granting support Introducing limits to annual support to capacity Acknowledging and securitising the accumulated tariff deficits in order to solve some of the financial difficulties of electricity companies and introduce reforms to achieve tariff cost sufficiency in the future Allocating revenues from various sources to finance the electricity tariff deficits through: Long-term levies on different actors (producers, retailers) in the electricity system Auctions of the unused CO2 allowances Phasing-out regulated tariffs in order to ensure tariffs' cost reflectiveness 12

13 in a nutshell.while the electricity tariff deficits emerged in the countries under economic programme, it is relevant for other countries too i.e. FR, BG, MT etc. Regulation through integrated tariffs or price caps can be distortive with negative consequences on the functioning of the electricity market. The increasing cost of support schemes, which were applied in most MS to promote RES deployment, increased the probability of an electricity tariff deficit occurring Most MS have taken a number of reforms in order to avoid, eliminate or reduce an electricity tariff deficit i.e. FR, ES, EL, PT, DE Moving forward means that policies should achieve the tariff cost sufficiency by i.e. ensuring the independence of the energy regulators, phasing-out regulated prices and controlling the cost of support to various sources... 13

14 Thank you for your attention! Any questions? 14