Hepi monthly update

Household Energy Price Index for Europe March 3, 2016 February Prices Just Released

The 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 29 European countries In This Month’s Edition

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 29 European countries. VaasaETT was recently commissioned by Hungary's MEKH to expand the coverage of HEPI to the remaining 6 countries that were not yet part of our study, namely, Estonia, Cyprus, Latvia, Lithuania, Malta, and Bulgaria. Our price survey now includes all of the 28 EU member countries in addition to Serbia who is a full candidate to membership. We would like to use this opportunity to thank the energy market authorities 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 www.energypriceindex.com and subscribe to the free monthly update of the HEPI index for Europe.

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HEPI price trend – European energy prices stable around their all-time high Important decrease in electricity prices in Nicosia and Madrid Important increase in electricity prices in Tallinn Important decrease in gas prices in Ljubljana; London, Athens, Brussels and Copenhagen Prices at PPS highest in Central and Eastern Europe Energy Price breakdown – Market forces represent less than half of the energy bill Topic focus: Finnish DSO faces public outrage after announcing price hikes

European energy price development Figure 1 shows the evolution of residential energy and distribution prices excluding taxes between January 2009 and February 2016 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 index for electricity reached its highest value in January 2015 at 121 index points. The index currently hovers around its all-time high at 116 index points.

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 82 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 until the beginning of 2013. It remained between 105 and 110 index points ever since despite a significant drop in natural gas prices on international markets during the year 2015. It currently stands at 102 index points.

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Figure 1 Evolution of residential energy and distribution prices excluding taxes in the EU-15

Figure 2 Evolution of residential energy and distribution prices excluding taxes in the EU-28

Residential electricity prices

Figure 3 shows the end-user price of electricity in 29 European capital cities as of February 1st 2016. It shows that depending on where a customer lives in the EU, the price that a customer has to pay per kWh of electricity can be three times the

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price. If we include Belgrade, the price varies by a staggering ratio of 4.8.

Copenhagen and, since January 2013, Berlin are by far the most expensive cities for household customers in Europe though the price of energy represents only a small portion of the total price, the lion’s share being tax, in fact. Inhabitants of Belgrade pay the least followed by inhabitants of Tallinn and Sofia. In nominal terms, prices in the capital cities of Central and Eastern Europe (CEE) tend to be lower than average; Prague is the only capital city among the CEE countries in which the price of electricity is above the European average.

Figure 3 Residential electricity prices including taxes (February 2016) 35 30

c€ per kWh

25 20 15

31,52 29,29 23,31 22,60

10 5

21,79 21,48

19,87 19,42 19,11

18,70 18,63 18,18 18,03

16,73 16,50 16,03

15,59 15,35 14,65

17,07 14,43

13,16 13,15 12,70 12,47 12,21

Source: HEPI by Energie-Control Austria, MEKH and VaasaETT Ltd.

11,98 11,03

10,57 6,62

End-user electricity price (February 2016)

Some changes took place in the electricity market this month; the most significant ones were: 

A 7% price decrease in Nicosia



A 5% price increase in Tallinn



A 2% decrease in Madrid

When adjusted to purchasing power in each country1, the picture changes dramatically. Indeed, most CEE countries end up with prices which are above the

1

PPS is an artificial common reference currency unit that eliminates price level differences between countries.

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Average

Belgrade (RS)

Sofia (BG)

Tallinn (EE)

Budapest (HU)

Valletta (MT)

Bucharest (RO)

Vilnius (LT)

Helsinki (FI)

Zagreb (HR)

Warsaw (PL)

Ljubljana (SI)

Bratislava (SK)

Stockholm (SE)

Riga (LV)

Nicosia (CY)

Amsterdam (NL)

Athens (GR)

Luxembourg City (LU)

Prague (CZ)

Paris (FR)

Rome (IT)

Brussels (BE)

Vienna (AT)

London (GB)

Dublin (IE)

Madrid (ES)

Lisbon (PT)

Berlin (DE)

Copenhagen (DK)

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European average (Figure 4). Again in this month, Lisbon is the most expensive electricity followed by Prague and Berlin the same way it was in January. On the other end of the spectrum, Helsinki has the cheapest electricity at PPS followed by Stockholm, Belgrade and Luxembourg City.

TOPIC FOCUS: News from Finland Although it does not affect our price study directly as we concentrate on the capital cities, we would like to share an interesting piece of news on the latest developments in the Finnish electricity markets. In January 2016, a heated discussion took place in the Finnish media after substantial increase in distribution fees were announced by “Caruna Oy� which holds a monopoly position in the electricity distribution networks of South, Southwest and West Finland. The DSO announced that network fees were to increase by 27% in their network area starting March 1st, 2016. This would have been the largest single price jump we witnessed since starting this price survey. Faced with public outrage and intervention of the Consumer Ombudsman the company agreed to reschedule (albeit not lower) the price hikes to take place in several steps over the years 2016 and 2017.

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.

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Figure 4 Residential electricity prices including taxes at PPS (February 2016)

30

c€ per kWh

25 20 15

29,91

28,87 28,09 25,88 25,33 25,24 24,44

10 5

23,39 22,86 22,14 22,06 21,49 21,05 20,86

19,55 19,2 18,99 18,3 17,6 17,6 16,99 16,66

20,17 15,29 15,21 15,21 15,15 15,01 12,07

Source: HEPI by Energie-Control Austria, MEKH and VaasaETT Ltd.

10,6

Average

Helsinki (FI)

Belgrade (RS)

Stockholm (SE)

Valletta (MT)

Luxembourg City (LU)

Tallinn (EE)

London (GB)

End-user electricity price at PPS (February 2016)

Amsterdam (NL)

Paris (FR)

Nicosia (CY)

Vienna (AT)

Brussels (BE)

Rome (IT)

Ljubljana (SI)

Dublin (IE)

Zagreb (HR)

Vilnius (LT)

Budapest (HU)

Athens (GR)

Bratislava (SK)

Sofia (BG)

Riga (LV)

Copenhagen (DK)

Madrid (ES)

Bucharest (RO)

Berlin (DE)

Warsaw (PL)

Lisbon (PT)

Prague (CZ)

0

Residential gas prices

Figure 5 shows the end-user price of natural gas in 26 European capital cities as of February 1st 20162. The highest price by very far is paid by inhabitants of Stockholm, who pay over twice as much as the second most expensive city’s does for gas. This can be explained by the small size of the market; there are only 33,000 household gas customers in the whole of Sweden3. Not accounting for Stockholm, Copenhagen becomes the most expensive city for gas with Lisbon right in its tail. The prices in Copenhagen are 3.1 times as high as in Bucharest, which is the cheapest city for gas. Even more clearly than for electricity, household natural gas is cheapest in the CEE countries.

This month included some changes for gas prices as well, and the most significant ones are summarised below: 

9% decrease in Ljubljana, due to drop in the energy component.



4% decrease in London.



3% decrease in Athens, Brussels and Copenhagen.

2

Please note that Helsinki, Nicosia, and Valletta have been left out of this analysis on gas prices as there is virtually no residential gas market in these cities.

3 The Swedish electricity and natural gas markets 2013 (2014: 51).

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Figure 5 Residential gas prices including taxes (February 2016) 25

c€ per kWh

20

15 24,18

Source: HEPI by Energie-Control Austria, MEKH and VaasaETT Ltd.

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© 2016 VaasaETT Ltd.

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9,34 9,33

8,07

7,17 7,11 7,01 6,68 6,61 6,52 6,37 6,37 6,53 5,92 5,84 5,34 5,18 4,96 4,95 4,72 4,67 4,47 4,4 4,28 3,84 3,31 3,05

Average

Bucharest (RO)

Budapest (HU)

Riga (LV)

Belgrade (RS)

Tallinn (EE)

Sofia (BG)

Warsaw (PL)

Zagreb (HR)

Vilnius (LT)

Bratislava (SK)

Luxembourg City (LU)

Brussels (BE)

Athens (GR)

Prague (CZ)

Ljubljana (SI)

Paris (FR)

London (GB)

Madrid (ES)

Dublin (IE)

Amsterdam (NL)

Berlin (DE)

Vienna (AT)

Rome (IT)

Lisbon (PT)

Copenhagen (DK)

Stockholm (SE)

0

End-user natural gas price (February 2016)

Prices at PPS offer a very different outcome, even with Stockholm and Lisbon in the lead with the highest adjusted price followed by Sofia and Prague, while Luxembourg, Brussels and London have Europe’s lowest adjusted prices for gas.

Generally speaking, the CEE countries no longer exhibit Europe’s lowest gas prices when adjusted to PPS. (Figure 6)

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Figure 6 Residential gas prices including taxes at PPS (February 2016) 20 18 16

câ‚Ź per kWh

14 12 10

18,72

8 6

11,98 9,68 9,17 8,71 8,38 8,2 8,02 7,96 7,49 7,49 7,38 7,14 6,93 6,82 6,6 6,41 6,34 6,19 6,07

4 2

7,60 6

5,93 5,92

Source: HEPI by Energie-Control Austria, MEKH and VaasaETT Ltd.

4,94 4,84 4,31

Energy price breakdown

The breakdown of

end-user

energy prices

into

four

components;

energy,

distribution, energy taxes and VAT, also shows major variations that can be seen in Figures 7 and 8. Our survey shows that on average, the energy price component (including retail margins) represents about 40% of the end-user price of electricity, distribution 32%, energy taxes 12% and VAT 16%, while energy (including retail margins) represents 50% of the end-user price of natural gas, distribution 27%, energy taxes 8% and VAT 16%.

Copenhagen is a very unusual case; the cost of energy as a commodity represents just 11% of the end-user electricity price, by far the lowest of all surveyed cities, whereas the energy taxes represent an astonishing 49% (over three times Europe’s average) and 69% if we include VAT. A similar (albeit to a lesser extent) case is Berlin where since the introduction of the Energiewende, the energy tax component represents 30% of the end-user price of electricity.

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Average

Brussels (BE)

Luxembourg City (LU)

End-user gas price at PPS (February 2016)

London (GB)

Paris (FR)

Budapest (HU)

Dublin (IE)

Tallinn (EE)

Bucharest (RO)

Riga (LV)

Amsterdam (NL)

Vienna (AT)

Berlin (DE)

Copenhagen (DK)

Athens (GR)

Madrid (ES)

Bratislava (SK)

Zagreb (HR)

Ljubljana (SI)

Rome (IT)

Vilnius (LT)

Warsaw (PL)

Belgrade (RS)

Prague (CZ)

Sofia

Lisbon (PT)

Stockholm (SE)

0

Overall, the results show that market forces represent only about half of the enduser price (both for electricity and gas) whereas national fiscal and regulatory elements are responsible for the other half through distribution tariffs, energy taxes and VAT. 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 offers4.

Figure 7 Residential electricity price breakdown (February 2016) 100% 90%

5% 17% 17% 17% 0%

80% 70%

8%

3%

26%

12%

13%

17%

12%

44%

21%

30%

7% 5% 0% 17% 17% 13%

6%

19% 0%

28%

24%

16%

33% 25%

42%

54% 44%

20%

21%

29% 31%

38%

38%

38%

34%

0%

7%

4%

12%

13%

43%

34%

53%

42%

51%

40%

34%

32%

46%

82%

31%

53% 45% 41% 32%

40% 48%

38% 37%

35%

28%

17% 20% 16%

20%

34%

53% 59%

11%

17% 17% 18%

33% 17%

64%

1%

8%

19%

30%

17% 19% 19% 17%

29%

29%

29%

13%

10%

16% 37%

33% 49%

12% 9%

11%

19%

25%

50%

10%

14% 16%

5%

20%

60%

40%

20% 15% 17% 20% 17% 19%

28% 32% 35% 33% 35% 32%

40% 29%

11%

Distribution

4

Energy Taxes

VAT

You may download the latest version of VaasaETT's survey of utility customer switching at http://www.utilitycustomerswitching.com.

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Average

Stockholm (SE)

Madrid (ES)

Ljubljana (SI)

Belgrade (RS)

Bratislava (SK)

Lisbon (PT)

Bucharest (RO)

Warsaw (PL)

Amsterdam (NL)

Valletta (MT)

Luxembourg City (LU)

Riga (LV)

Vilnius (LT)

Dublin (IE)

Budapest (HU)

Athens (GR)

London (GB)

Paris (FR)

Energy

Berlin (DE)

Tallinn (EE)

Helsinki (FI)

Prague (CZ)

Copenhagen (DK)

Zagreb (HR)

Nicosia (CY)

Sofia (BG)

Brussels (BE)

Vienna (AT)

Š 2016 VaasaETT Ltd.

Rome (IT)

Source: HEPI by Energie-Control Austria, MEKH and VaasaETT Ltd.

0%

Figure 8 Residential gas price breakdown (February 2016)

68%

30% 41% 45%

51%

56%

52%

58%

74% 58%

45%

57%

37%

43%

10%

49% 49%

51%

39%

50% 33%

40% 43% 39%

50%

Energy

Distribution

Energy Taxes

Stockholm (SE)

Madrid (ES)

Ljubljana (SI)

Bratislava (SK)

Belgrade (RS)

Bucharest (RO)

Lisbon (PT)

Warsaw (PL)

Amsterdam (NL)

Vilnius (LT)

Š 2016 VaasaETT Ltd.

Luxembourg City (LU)

Tallinn (EE)

Prague (CZ)

Source: HEPI by Energie-Control Austria, MEKH and VaasaETT Ltd.

Copenhagen (DK)

Zagreb (HR)

Sofia (BG)

Brussels (BE)

Vienna (AT)

0%

Average

20%

Riga (LV)

20%

71%

62% 26% 66%

Rome (IT)

40%

Dublin (IE)

50%

Budapest (HU)

60%

Athens (GR)

70%

London (GB)

80%

Berlin (DE)

90%

5% 7% 9% 12% 16% 17% 14% 16% 3% 11% 17% 17% 17% 20% 17% 17% 18% 2% 17% 19% 17% 17% 0% 17% 18% 17% 20% 16% 21% 20% 6% 0% 0% 0% 17% 0% 7% 21% 10% 0% 4% 8% 4% 0% 8% 4% 4% 10% 0% 10% 12% 10% 33% 11% 12% 21% 23% 10% 24% 21% 31% 33% 33% 34% 26% 18% 38% 29% 29% 27% 33% 33% 36% 36% 30% 32% 30% 40% 24% 10%

Paris (FR)

100%

VAT

Visit our project webpage at www.energypriceindex.com and subscribe to the free monthly update of the HEPI index for Europe.

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For More Information Christophe Dromacque HEPI Project Manager Office: +358 (0)9 4159 0344 Mobile: +358 (0) 449066822 Email: christophe.dromacque@vaasaett.com (English / French) Rafaila Grigoriou Analyst Email: rafaila.grigoriou@vaasaett.com (English / Greek) Hanna Launonen Assistant analyst Mobile: +358 (0) 40 768 9394 Email: hanna.launonen@vaasaett.com (English / Finnish) Silke Paizoni Regulation and Competition Office: +43 (1) 24724 715 Email: Silke.Paizoni@e-control.at(English / German) L谩szl贸 Szab贸 Head of Unit of Analysis and Modelling Department of Analysis and Statistics Office: +36 1 459 7910 Email: szabolaszlo@mekh.hu (English / Hungarian)

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About the Authors

Energie-Control Austria Energie-ControlAustria was set up by the legislator on the basis of the new Energy Liberalisation Act and commencedoperationon 1 March 2001. 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: www.e-control.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: www.mekh.hu VaasaETT Global Energy Think Tank VaasaETT is a research and advisory consultancy dedicated to customer related issues in the energy industry. VaasaETT advises its clients based on empirical evidence brought about from extensive research in the area of customer behavior and competitive market behavior (including smart energy offerings, demand response, energy efficiency, smart home, smart grid). VaasaETT’s unique collaborative approach enables it to draw on an extensive network of several thousand energy practitioners around the world who can contribute to its research activities or take part in industry events it organizes allowing VaasaETT to integrate global knowledge and global best practice into its areas of expertise. VaasaETT’s truly global focus is reflected by research and strategic support having been provided to a diverse array of organizations on 5 continents including for instance 28 of the Fortune Global 500 companies, the European Commission, Government and public research bodies in Europe, Japan, the UAE, the Middle East and Australia. More at: www.vaasaett.com

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