Household Energy Price Index for Europe. October 8th September Prices Just Released

Transcription

1 Household Energy Price Index for Europe October 8th 2013 September Prices Just Released Europe's most up-to-date picture of European household electricity and gas prices: VaasaETT and two leading European energy market authorities collaborate to track monthly energy prices in 23 European countries Energie-Control Austria, the Hungarian Energy and Public Utility Regulatory Authority (MEKH) and VaasaETT are delighted to publish the results of our study of residential electricity and gas prices now covering 23 European countries this month for the first time. VaasaETT was recently commissioned by Hungary's MEKH to expand the coverage of HEPI to eight Central and Eastern European countries, namely, Hungary, Croatia, the Czech Republic, Poland, Romania, Serbia, Slovakia and Slovenia. Our price survey now includes 22 of the 28 EU member countries in addition to Serbia who is a full candidate to membership. As a result, HEPI encompasses over 500 million people representing 97% of the EU-28 population. We would like to use this opportunity to thank the energy market authorities of the newly included countries for their time and cooperation to ensure the quality and accuracy of the data. If you would like to know more about the latest developments in residential energy prices, visit our project webpage at and subscribe to the free monthly update of the HEPI index for Europe. In This Month s Edition Europe s most up-todate picture of European household electricity and gas prices now includes eight Central and Eastern European countries HEPI price trend Electricity prices keep increasing while gas prices continue on the opposite trend Eastern and Southern European countries have highest prices for energy when measured at PPS Energy Price breakdown Market forces represent less than half of the electricity bill.

2 KEY FINDINGS AS OF SEPTEMBER 2013 Electricity and gas prices (including distribution but excluding taxes) in the capital cities of the EU-15 have been evolving on an asymmetrical trend since early 2013 with electricity on an upward trend and gas steadily decreasing (Figure 1). The electricity index reached 115 points this month (stable from last month) while the gas index reached 106 index points (also stable from last month). The values of the HEPI indexes extended to the 22 EU countries that are part of our survey (Serbia is excluded from the index at the moment) barely budged compared to last month (Figure 2). Without the introduction of the capital cities of eight Central and Eastern European (CEE) countries to our survey, September's average end-user price of electricity would be 9% higher while the average end-user price of natural gas would be 14% higher. At first glance, therefore, it seems that electricity and gas prices in the CEE countries tend to be much lower than in the EU-15 countries (Figures 3 and 6). In fact, the average price of gas in the eight CEE countries is 40% lower than in the EU-15 countries. What is more, the Czech Republic is the only country among the CEE countries in which the price of electricity is above the European average. However, this picture changes dramatically if we adjust prices to purchasing power standards (PPS) in each country 1. At PPS, most of the capital cities of the CEE countries have higher-than-average adjusted prices. The situation is true for both electricity and gas (Figures 4 and 7). The average adjusted price of electricity in the capital cities of the CEE countries is 18% higher than the average adjusted price of electricity in the EU-15. The difference is not as sharp for gas but nonetheless significant (4%). The introduction of the capital cities of the CEE countries to our study did not significantly affect the conclusions to be drawn from looking at the breakdown of energy prices into different components. Market forces are still responsible for less than half of European households electricity bills and just above half for gas (Figures 5 and 8). 1 PPS is an artificial common reference currency unit that eliminates price level differences between countries. One PPS thus buys the same given volume of goods and services in all countries. It is developed by Eurostat to accurately compare prices across Europe. 2

3 EUROPEAN ENERGY PRICE DEVELOPMENT Figure 1 shows the evolution of residential energy and distribution prices excluding taxes between January 2009 and September 2013 in 15 European capital cities. The index is calculated by weighing prices in each of the capital cities by the respective national electricity or gas residential consumption. Residential electricity prices steadily decreased over the first half of 2009 and reached a trough at 96 index points in June 2009 as the economic crisis took its toll on demand and wholesale prices plummeted. Prices started to recover in the second half of 2009 together with (temporary) green shoots in economic activity and a general feeling that the worst of the crisis was behind us. They have been on an upward trend since then. The economic downturn which impacted energy demand and wholesale prices in 2009 is much more visible in the development of residential gas prices. The gas price index dropped significantly in 2009 and reached its lowest value only in February 2010 at 81 index points (eight months after the lowest value in the electricity price index). Retail prices started to recover in the winter of 2010 when a cold wave hit many parts of Europe. The index steadily increased ever since. Both indexes reached their peak values in January 2013 (at 117 index points for electricity and 110 for gas) and both have slightly lost ground since then. As of September 2013, electricity and distribution prices excluding taxes are about 15% higher than in January 2009 whereas gas and distribution prices excluding taxes are about 6% higher. The indexes have been evolving in an asymmetrical way since early

4 Figure 1. Evolution of residential energy and distribution prices excluding taxes in the EU-15 Figure 2 shows the evolution of residential energy and distribution prices excluding taxes between July (=100) and September 2013 in 22 EU capital cities (it excludes Serbia which is not yet a member state). The main conclusions to be drawn from this short time series are that prices have been rather stable overall and are evolving in an asymmetrical manner. Figure 2. Evolution of residential energy and distribution prices excluding taxes in the EU-22 4

5 OVERVIEW OF RESIDENTIAL ELECTRICITY PRICES IN 23 EUROPEAN CAPITAL CITIES Residential electricity prices Figure 3 shows the end-user price of electricity in 23 European capital cities as of September It shows that depending on where a customer lives in the EU, the price that customer has to pay per kwh of electricity can vary by as much as 127%. If we include Belgrade, the price varies by a staggering ratio of 4.8. Household customers in Copenhagen and (since quite recently) Berlin pay by far the highest prices in Europe (though the price of energy represents of small portion of the total price, the lion s share being taxes, in fact), while inhabitants of Belgrade pay the least. At first glance, it seems that electricity prices tend to be lower in the CEE countries; Prague is the only capital city among the newly included countries in which the price of electricity is above the European average. Figure 3. Residential electricity prices including taxes (September 2013) When adjusted to purchasing power in each country however, most CEE countries end up with prices which are above the European average. Berlin becomes the 5

6 place with the most expensive electricity followed by Prague and Lisbon. On the other end of the spectrum, Helsinki has the cheapest electricity at PPS followed by Stockholm and Paris. Figure 4. Residential electricity prices including taxes at PPS (September 2013) Electricity price breakdown The breakdown of end-user electricity prices into four main components depicted in Figure 5 (energy, distribution, energy taxes and VAT) shows major variations in Europe. On average, the energy price component (including retail margins) represents a mere 41% of the end-user price. Distribution and transmission represent 33%; energy taxes 11% and VAT 16% 2. Copenhagen is a peculiar case since the cost of energy represents only 16% of the end-user price, by far the lowest of all surveyed countries, whereas energy taxes represent an astonishing 37% (over three times the average) and 57% if we include VAT. In many places in Europe, end-user prices are so heavily influenced by a combination of taxes, distribution costs and wholesale prices that any variation in supplier costs has a relatively small, if noticeable, influence on the prices paid by the customer. The 2 The total is higher than 100% due to rounding. 6

7 electricity component (in blue in the graphs) represents in effect the "switchable" part of the cost, or in other words the cost the customer can seek to decrease through switching to a cheaper supplier. The lower the energy price component, the lower the incentive for customers to look for more competitive offers 3. It also means that retailers can hide relatively high margins or inefficiencies without much notice. Figure 5. Residential electricity price breakdown (September 2013) Visit our project webpage at and subscribe to the free monthly update of the HEPI index for Europe. 3 You may download the latest version of VaasaETT's survey of utility customer switching at 7

8 OVERVIEW OF RESIDENTIAL GAS PRICES IN 22 EUROPEAN CAPITAL CITIES Residential gas prices Figure 6 shows the end-user price of natural gas in 22 European capital cities as of September The highest price by very far is paid by inhabitants of Stockholm (close to twice as much as the second most expensive city for gas). This can be explained by the small size the market; there are only 33,000 household gas customers in the whole of Sweden 5. Not accounting for Stockholm, Copenhagen becomes the most expensive city for gas where prices are three times as high as in Bucharest, the cheapest city for gas. At first glance, it seems that gas prices (just like for electricity prices) are lowest in the newly added CEE capital cities. As shown by the graph, the six cheapest cities for gas are capital cities of CEE countries. Figure 6. Residential gas prices including taxes (September 2013) 4 Please note that Helsinki has been left out of this analysis on gas prices. Indeed, there is virtually no residential gas market in Finland. 5 The Swedish electricity and natural gas markets 2011 (2012: 61). 8

9 However, prices at PPS (and ignoring Stockholm) offer a very different outcome with capital cities of CEE and Southern European countries generally having the highest prices. Lisbon has the highest adjusted prices followed by Belgrade, Rome, Warsaw, Prague, etc... Luxembourg, London and Brussels have Europe s lowest adjusted prices for gas. Figure 7. Residential gas prices including taxes at PPS (September 2013) Gas price breakdown As for electricity, the breakdown of end-user gas prices into four main components (energy, distribution, energy taxes and VAT) differs a lot within Europe. On average, the energy price component (including retail margins) represents 54% of the total cost; distribution 23%; energy taxes 7% and VAT 16%. Copenhagen again offers a peculiar picture as the cost of energy represents just 28% of the end-user price, by far the lowest of all surveyed countries, whereas energy taxes represent 36% (over five times the average) and over a half if we include VAT. Another unusual case is Belgrade where the energy component represents 87% of the end- 9

10 user price. In places where the energy component (the competitive part of the price) is lower, so is the incentive for customers to look for more competitive offers 6. Figure 8. Residential gas price breakdown (September 2013) Visit our project webpage at and subscribe to the free monthly update of the HEPI index for Europe. 6 You may download the latest version of VaasaETT's survey of utility customer switching at 10

11 What is the HEPI? To correct for a persistent lack of current, frequently updated and methodologically reliable information on household prices for both electricity and gas at the European level, the Austrian energy regulator Energie-Control, the Hungarian Energy and Public Utility Regulatory Authority (MEKH) and VaasaETT work together to compile and publish the Household Energy Price Index (HEPI) as well as price ranking in 23 European capital cities on a monthly basis. The methodology (described in the next chapter) is designed in such a way that "HEPI prices" reflect prices paid by typical residential customers and assess overall price developments in Europe. Illustrating its value to numerous stakeholders, the Hungarian Energy and Public Utility Regulatory Authority (MEKH) recently decided to commission the addition of eight Central and Eastern European countries to the study. Each month, about 150 organisations worldwide receive the free monthly update, ranging from regulatory and government bodies, utilities, IT companies, research centres, consultancies, journalists and others from Europe, but also from Australia, North America and the Middle East. Our study is also meeting some of its primary goals, which are to enable and promote price transparency in an industry where this may arguably be lacking and enhance price comparability at the European level. Finally, HEPI is increasingly being used by national regulators, journalists and consumer groups to compare and discuss energy prices in their respective countries or at the European level. For instance, HEPI has recently been used extensively by ACER and the CEER in their first annual Monitoring Report and is used regularly by the DG Energy at the European Commission for their quarterly reports on energy markets. We encourage you to use tables, charts and other figures from this report in your own reports and presentations providing they are unchanged and accompanied by the full reference to "Energie-Control Austria, Hungarian Energy and Public Utility Authority and VaasaETT". If you would like further usage rights, please contact andy.white@vaasaett.com. 11

12 The methodology behind the Household Energy Price Index Based on the electricity and natural gas prices collected both for incumbents and competitor companies in capital cities of 23 European countries, Energie-Control Austria, the Hungarian Energy and Public Utility Regulatory Authority in cooperation with VaasaETT have compiled the Household Energy Price Index (HEPI). HEPI is a weighted end-user price index that assesses overall price developments in Europe. Energie-Control Austria, the Hungarian Energy and Public Utility Regulatory Authority and VaasaETT will continue to publish HEPI every month. The methodology surrounding the HEPI project is designed to reflect the prices typically paid by residential customers in state capital cities by: Obtaining comparable prices for household energy consumption (both electricity and gas); Gathering data in relatively short time intervals (monthly); Taking into account different national consumption patterns (typical consumption levels); Reflecting different emerging tariff schemes, such as standard and competitive tariffs offered by incumbents and tariffs offered by competitors; and, Clearly distinguishing between the price for energy as a commodity, distribution and transmission charges, associated taxes and VAT. It does so by aggregating the incumbent suppliers standard tariff and the tariffs offered by the main players in each city according to their respective market shares (in most cases the local incumbent and its main competitor). By using these three tariffs, we cover most customers in each capital city (from 60% in London to over 99% in many other cities). Individual city prices are then weighted according to the national electricity or gas consumption to calculate the HEPI indexes. 12

13 Definitions 1. Incumbent: The former (or current) monopolistic electricity supplier, which typically sells electricity to customers in the state capital city area. 2. Standard incumbent price: The price that residential customers in the incumbent s area receive without any negotiation (by default). 3. Competitive incumbent price: The price which residential customers of the incumbent supplier receive if they leave the regulated price or request a better or different price or tariff type but remain with their by-default supplier. This price may be a variable or fixed term tariff (real-time, spot and other market based tariffs are at present not included). 4. Leading competitor price: The price which residential customers of the leading non-incumbent competitors (most successful in terms of organic customer wins) in the state capital city receive. This price may be a variable or fixed term tariff (realtime, spot and other market based tariffs are at present not included). Other Data Characteristics All prices and other statistics relate to: The first day of the month the data is collected; Residential customers with a typical consumption for the state capital city; Customers in the state capital city area of the state concerned. To ensure comparability: Sign in and other temporary bonuses and other forms of non-monetary benefits are not taken into account since they can distort the overall tariff offered, especially in cases where they are offered on a one-off basis; Standing fees are added to the price per kwh so that the entire end-user cost is taken into account. Energy Price Formula 1. Incumbent Standard Price Component = Incumbent Standard Price x Incumbent Standard Price Weighting* 13

14 2. Incumbent Competitive Price Component = Incumbent Competitive Price x Incumbent Competitive Price Weighting** 3. Leading Competitor Price Component = Leading Competitors Price x Leading Competitors Price Weighting*** 4. Total Price (State price) = Incumbent Standard Price Component + Incumbent Competitive Price Component + Leading Competitor Price Component *: Proportion (%) of all customers in that city who remain of their by-default price. **: Proportion (%) of all customers in that city who have one of the incumbent s competitive prices. ***: Proportion (%) of all customers in that city who have the non-incumbent competitive price. Limitation: It is possible that in some states, competitive tariffs actually offered by incumbent and competitors may in some cases be lower than those officially published (price matching). This may raise the apparent relative price averages of such states within HEPI. In addition, it should be noted that it is accepted that not all customers receiving competitive prices receive the same price. This price represents the average price of the most popular players for the period being measured. 14

15 For More Information Christophe Dromacque HEPI Project Manager Office: +358 (0) Mobile: +358 (0) (English / French) Anna Bogacka Analyst Office: +358 (0) anna.bogacka@vaasaett.com (English / Russian) Silke Ebnet Regulation and Competition Office: +43 (1) silke.ebnet@e-control.at (English / German) László Szabó Head of Unit Department of Market Monitoring szabolaszlo@mekh.hu (English / Hungarian) 15

16 About the Authors Energie-Control Austria Energie-ControlAustria was set up by the legislator on the basis of the new Energy Liberalisation Act and commenced operation on 1 March Energie-Control is headed by Mr. Walter Boltz and Mr. Martin Graf as managing directors and is entrusted with monitoring, supporting and, where necessary, regulating the implementation of the liberalisation of the Austrian electricity and natural gas markets. More at: The Hungarian Energy and Public Utility Regulatory Authority The main responsibilities of the Hungarian Energy and Public Utility Regulatory Authority are consumer protection, providing regulated access to networks and systems, carrying out regulatory competencies in order to maintain security of supply and fostering competition. The scope of the infrastructures, which have to be overseen by the Hungarian Energy and Public Utility Regulatory Authority has been extended in 2011 with the complete regulation of district heating and in 2012 with the water public utilities. As market progresses are becoming more widespread, we put emphasis on our market monitoring task and we pay specific attention to regional market integration both in electricity and natural gas. More at: VaasaETT Global Energy Think Tank VaasaETT is a unique and world leading collaborative think-tank and consultancy that delivers best practice, data, analysis and highly specialised expertise from around the world to the global energy and utilities industry. We help turn the World s best knowledge into local strategies and solutions. At the heart of our offering is a global knowledge sharing network of thousands of contacts in over 60 countries in six continents and a vast up-to-date and ever increasing store of global best practice, data and analyses. Our world-leading expertise include: customer behaviour and psychology, customer lifetime value, smart energy issues and market efficiency issues. VaasaETT is the world s leading source of benchmark information on customer switching trends and dynamics; retail energy prices; and, smart grid, smart energy demand and demand response programs. VaasaETT is also a founding member and manager of the European Smart Energy Demand Coalition (SEDC); the World s only organization that has tracked customer behavior data in every competitive electricity market globally since market opening, and a source of market tracking data in over 60 jurisdictions in six continents. VaasaETT delivers assistance to clients and its network through consulting, collaboration and its new energydatastore.com service. More at: 16

17 Sources AERS (Energy agency of the Republic of Serbia),ANRE (Autoritatea Nationala de Reglementare in Domeniul Energiei, Romania), Autorità per l'energia elettrica e il gas (Italy), BDEW (Germany), BnetzA (Germany), BRUGEL (Brussels), CEER, CNE (Spain), Commission for Energy Regulation (Ireland), CRE (France), Dansk Energi (Denmark), DECC (Great Britain), Energiamarkkinavirasto (Finnish Energy Market Authority), Energie-Control Austria, Energie-info (France), Energiezaak (Netherlands), Energy Customers (Ireland), Entidade Reguladora dos Serviços Energéticos (Portugal), Eurostat, Institut Luxembourgeois de Regulation (Luxembourg), ERO Javna agencija Republike Slovenije za energijo (Slovenia), ERU (Energetický regulační úřad, Czech Republic), OFGEM (Great Britain), MEKH (Hungarian Energy and public Utility Autoroty), RAE (Greece), Statistics Norway, Statistics Sweden (SCB), The Energy Markets Inspectorate (Sweden), URE(Energy Regulatory Office, Poland), URSO (Úrad pre reguláciu sieťových odvetví, Slovakia) 17