Annual Report on the Results of Monitoring the Internal Electricity and Natural Gas Markets in 2021 Energy Retail and Consumer Protection Volume

This Volume outlines retail energy market developments across Europe during 2021. Notwithstanding this, it also contains select 2022 information, given the significance of the current energy crisis Europe is facing.

The current energy crisis started as a gas price shock. With the economic recovery in 2021, global gas demand bounced back to pre-pandemic levels and outstripped supply. Furthermore, gas supply was severely affected by the fallout from the war in Ukraine, which led to a sharp decrease of Russian pipeline supplies. LNG deliveries to Europe increased strongly, attracted by very high gas wholesale prices. Since many gas-fired power generators are needed to meet electricity demand, these high gas prices translated into high electricity wholesale prices. On top of that, limited nuclear availability and low hydropower exacerbated the electricity supply situation, pushing prices upwards.

European energy consumers are affected by these high wholesale prices in sharply divergent ways: while some are temporarily protected by fixed-price contracts, others are directly exposed to wholesale prices. Notwithstanding this divergence, over time all consumers are likely to face unprecedented energy bill increases as it would seem difficult to withhold price exposure indefinitely.

In response to these energy price rises, the European Commission published in October 2021 a “toolbox” measures that could be taken by Member States to mitigate the impact of the significant 2021 whole- sale price hikes on household bills. Particular attention was given to vulnerable consumers, whilst preserving the functioning of EU energy markets. Around the same time, ACER published a separate note analysing the price developments so far that year.

As retail prices often follow wholesale prices with a certain delay and are thus likely to increase in 2022, policy makers will be placed in a difficult position to find a balance when implementing measures to counter the impact of price increases. It is unfortunately likely that, following the expected price increases, a cohort of consumers that had never previously needed financial support will find themselves in need of assistance in managing their energy bills.

Wholesale price increases will not only affect energy consumers, energy suppliers will likely also face significant hedging and liquidity challenges, which can limit their ability to offer fixed price products to energy consumers. This clearly points to a range of competing demands, which will all require consideration for the remainder of 2022 and likely into 2023.

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