No Member of Parliament can ignore energy prices in a debate about purchasing power. The high gas, electricity and petrol prices are going to hurt more and more. “The energy bill is breaking record after record,” said Stephan van Baarle of Denk last Wednesday. SP’er Bart van Kent spoke of a “sky-high energy bill”, while Léon de Jong (PVV) complained about “priceless” car rides due to “the sky-high petrol prices”.
Refueling is already expensive with a suggested retail price of 2.10 euros per liter (petrol), but a higher energy bill will only affect many people in the coming weeks or months. The new rates for gas and electricity will be charged when the new contract comes into effect, which will apply to approximately one third of households over the next three months.
Four questions about higher energy rates.
1Is it clear how much more energy we will have to spend next year?
Yes, the largest three energy companies in the Netherlands, accounting for 7.5 million customers, have now announced their rate increase for the coming year. Essent and Eneco expect to charge the average consumer EUR 17.50 more per month, while Vattenfall comes out at more than EUR 25.
That sounds like a simple calculation. But that is not it. Because what is average consumption? Vattenfall and Eneco see their customers purchase an average of 1,200 cubic meters of gas and 2,250 kWh of electricity per year. Essent’s customers may shower longer or have fewer solar panels, because that company sees its customers consuming an average of 1,400 cubic meters of gas and 3,000 kWh of electricity.
To make it even more complex: Eneco compares its new rates with July 2021, when energy was already becoming a bit more expensive. Compared to January 2021, the price is 28 euros higher per month.
According to Tomas Bleker of comparison site Pricewise, comparing is becoming increasingly difficult. Some suppliers change their rates in the meantime, others charge different prices for existing and new customers. With the rates that have now been announced, Pricewise for the largest companies amounts to an increase from 19 euros (Essent) to 28 euros (Vattenfall) per month. Pricewise, which assumes slightly higher average consumption, expects tariffs to be adjusted – normally downwards – in the second quarter.
On the positive side, customers can again choose from more offers. In October, at the height of the first gas crisis, energy companies withdrew their proposals en masse. “There are no earth-shattering offers yet,” says Bleker, “but you are slowly seeing companies coming back. There will also be cash backs [kortingen op termijn] offered. Companies seem to have found their footing again.”
2 The average bill seems to be almost a quarter higher. But gas has become six times more expensive, hasn’t it?
The reduction in energy tax has already been included in the published rate increases. In October, the cabinet announced that it would compensate everyone for the rising costs. In practice, this yields the average household about 35 euros per month. Taxes and costs of grid management form a substantial part of the bill.
It is also important that not all purchased gas has become six times more expensive in practice. Media often use the price of gas that is contractually supplied the following month. That price was Friday more than 91 euros per megawatt hour, against 15 euros in December 2020. If you buy gas now that will not be delivered until next spring, you pay 47 euros. Also higher than last year, but not sixfold.
“There is a very clear price curve,” says Wilko Schuijff, who is responsible for energy purchasing at Eneco. “You can choose to offer a three-year contract and then the gas will only cost us 24 euros at the end of the term.” The higher rate for the short term and the lower rate for later is then averaged in such a contract.
Fixed and variable contracts are offered on the Dutch market. “Variable or fixed says nothing about the price, but whether the term is fixed in advance,” says Schuijff. That makes a big difference for purchasing. “For people with a permanent contract, for example for a year, gas and electricity are purchased directly. For the people with variable contact, more than half at Eneco, we use a purchasing strategy in which purchasing is much more spread out. And that dampens the price.”
According to Schuijff, this price curve – gas that is supplied later is much less expensive – also played a role in the takeover of the customers of Welkom Energie, which went bankrupt at the end of October. At the time, Eneco received a lot of criticism from the people who were obliged to become customers because of the high rates. “It was then decided to offer a rate for four months, and then you pay the bulk of the current price increase,” says Schuijff. The result was that, for example, the electricity price for those people was almost twice as high as the now announced rate (per kilowatt hour) for a whole year. “But then the customer will be offered a rate after four months that will hopefully be lower for him.”
3Will energy rates remain so high for the time being?
After the peak in October, gas prices have fallen slightly, but in the past two weeks the level has been above 90 euros again. This has mainly to do with Nord Stream 2. Russia and the state-owned company Gazprom are doing everything they can, so far in vain, to put this pipeline to Germany quickly.
“Two weeks ago, the German regulator decided that Gazprom must first set up a subsidiary in Germany before the pipeline can become operational,” says energy specialist Hans van Cleef of ABN Amro. “It then became clear to everyone that Nord Stream 2 will no longer be used this winter.”
This week, the Russian gas supplier announced a significant increase in profit and turnover for the third quarter. At the same time, deliveries to Europe appeared to have declined slightly. “Gazprom adheres to the existing contracts, but does not deliver more than that,” says Van Cleef. “And we notice that because European countries have few long-term contracts.”
The other causes of the high price will not change for the time being either. Fewer gas reserves were built up in the spring due to the relatively cold weather. Furthermore, much of the liquefied gas passes Europe by the high demand in Asia.
The record prices on the CO2market also play a role. Large companies in the European Union must have rights to emit greenhouse gases. At the moment, these emission rights cost almost 80 euros. In March last year, when the Covid pandemic broke out in Europe, the price was still 16 euros. The consumer also gets the higher emission rights on his plate. This makes both gas and electricity (often generated by gas) more expensive.
In particular, the recent news that the new German government coalition will set a minimum price for CO2 considering, would have pushed the price up. “These kinds of messages immediately lead to extra market speculation,” says Van Cleef. “The price had already risen due to the high gas prices. These ensure that more coal is used for power production. And because of the high emissions of coal, that increases the demand for CO2rights.”
4Why is the oil price falling?
It hadn’t happened since the Covid-19 outbreak, but last week the oil price fell by 13 percent in one day. On that day, Covid variant Omikron made its public appearance. “Lockdowns and less air traffic will eventually lead to less demand for oil. The market speculates on that. You see that movement much less with gas,” says Van Cleef. “Whether you work at home or in the office, the stove is burning.”
Significant for the self-confidence of the oil-producing countries: OPEC decided on Thursday, together with Russia, to simply implement a planned production increase. At the end of the day, the oil price was nevertheless higher, but still far from the level at the beginning of last week.
US President Biden unintentionally showed last month that only Covid-19 seems capable of bringing the oil price down quickly. Because of the high price, he decided, together with other countries, to use the strategic oil reserves to keep the price down. “That involved a total of only 72 million barrels, considerably less than the world uses every day,” says Van Cleef.
He finds it illustrative of the current situation that the American oil industry itself invests too little to be able to increase its own production. „The International Energy Agency noted earlier that the lagging investments of the fossil fuel industry fit into the 1.5-degree scenario of Paris. That is of course great, but the market sees that as a risk that the supply will lag behind. Investments in renewable energy should be three times higher to ensure sufficient green alternatives.”
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