Review of European electricity prices

A recent report  by KEMA Consulting for Eurelectric reviews electricity prices in Europe. The report challenges the current thinking that liberalisation leads to higher prices. The cost of electricity is subdivided in 3 parts:

• Cost of energy: i.e. the cost of fuel and transformation. This part of electricity cost is now fully subject to market forces, but represents only about a third of what consumers pay for electricity.
• Network charges: costs for transmission and distribution, but also costs for ancillary services (e.g. spinning reserve), metering, etc.
• Taxes, levvies and surcharges: up to 2/3s of the electricity price for residential customers (in Denmark). This component is significant, and has been growing fast over the period 1995-2004.

While prices for industrial users have been rising over the period 2000-2004, prices in 2004 were at the same level as 1995 in nominal terms, and have decreased 16% over the same period in real terms. The report also notes very large differences between countries.