The EPIA reacts to the European Commission climate and energy  framework to be released soon.

Fossil fuels remain an important driver of price formation and of energy costs increase. TheCommission’s analysis shows that wholesale gas prices have increased significantly since 2009, reflecting the current heavy dependence on oil-indexed long term contracts. In the medium term, the report foresees that for electricity, costs increase will be driven by rising fossil fuel costs until 2020. Beyond 2020, energy costs should stabilise and then slightly decrease as fossil fuels are replaced by renewables.
 Europe is experiencing an increasing “GDP leakage” which could be avoided by
further investing in renewables. Europe being a fossil fuel price-taker, its trade deficit in
energy products has increased from EUR 150 bn in 2004 to EUR 421 bn in 2012,
representing 3.3% of its GDP. Avoided imported fuel cost due to renewables amounted to
EUR 10.2 billion in 2010 in electricity generation and to as much as EUR 30 billion in energy
in general. This has to be compared with the subsidies received by the renewable sector
(EUR 27 billion) in the same year. While investing in renewables such as PV generates
significant technology cost reductions, importing fossil fuels just increases the exposure of
the European economy to volatile external supplies. Instead of paying a rent, we should be
reimbursing a mortgage.

 Renewables help reduce wholesale electricity prices. Wholesale electricity prices have
experienced a downward trend between 2008 and 2012, partially explained by the
increasing share of renewables and the so-called “merit order effect”. Large energy
consumers are directly benefitting from this effect.

 But benefits created for suppliers at wholesale level are not passed onto the final
consumers. The energy component, which remains the largest element of the electricity bill
for households, has even slightly increased during the period 2008-2012. This is due to a
lack of competition in retail markets, high levels of market concentration and price regulation.

 Support to renewables is the only type of support made visible to the consumer.
According to the Commission’s analysis, the cost of support for renewables constitutes 7%
of the average EU household retail electricity price and 10% of the industrial electricity price

before exemptions. This support is usually reflected in the form of a specific charge or in the
network component of the energy bill. However, tax exemptions and subsidies given to other
forms of energy – according to the Commission, fossil fuels subsidies amounted to €26 bn
in 20111
– are not visible and usually financed by taxpayers. Much more transparency is
needed on the support provided to fossil fuels and nuclear.

 Energy efficiency helped so far the European energy-intensive industry absorb price
differentials with other regions. But this trend may stop with increasing energy prices and
the end of long-term energy purchases contracts. Price of natural gas or other hydrocarbons
are the main cost driver for the industries manufacturing bricks and roof tiles, wall and floor
tiles, float glass, ammonia and ethylene, while chlorine and primary aluminum production
greatly depends on the price of electricity.

 The US shale gas revolution is hardly replicable in Europe. The Commission’s analysis
shows that EU’s shale gas reserves appear to be significantly smaller and more dispersed
than in the US. This suggests that shale gas producers in the EU will not be able to rely on
similar economies of scale and will therefore not reach the same level of production costs.