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EU sees fuel costs falling but not consumer energy bills

Source: Reuters - Wed, 15 Jan 2014 10:18 AM
Author: Reuters
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* Carbon price seen at 100 euros in 2050

* Infrastructure costs will also rise

* Commission to launch retail market plan to address prices

By Barbara Lewis

BRUSSELS, Jan 15 (Reuters) - Fuel costs will rise in Europe for the rest of the decade and then start to fall as renewable energy displaces coal, oil and gas, but consumers are unlikely to enjoy cheaper bills even then, a draft European Commission paper said.

Households and small consumers have borne the brunt of above-inflation energy price rises, which has stoked fierce political debate. Across the European Union, politicians have blamed green subsidies for rising energy bills.

The Commission paper, set to be published next week as part of a 2030 environment and energy policy package, says that is not the full story.

Beyond 2020, fuel costs will stabilise and then fall as cheaper solar and wind power replace fossil fuels, it says.

The decline will be offset by the need to invest in new infrastructure and a rise in the EU carbon price from around 5 euros per tonne now to 100 euros ($140) in 2050, the paper estimates.

The Commission analysed data for 2008 to 2012 and found that wholesale electricity prices fell 35 percent to 45 percent on EU markets, while gas prices fluctuated but overall were stable.

Over the same period, average household electricity prices rose by 4 percent per year and natural gas prices by 3 percent per year.

For industrial users, which get subsidised rates, power prices rose by about 3.5 percent a year in the same period and gas prices by less than 1 percent per year.

The fall in wholesale prices was not passed on to consumers, because the cost of fuel has become an ever-smaller part of energy bills, while levies such as green subsidies and network fees to cover delivery have risen much more.

The Commission has a policy of not commenting on unpublished papers. Environmentalists said it underlined the benefits of renewable power.

"The document shows that wholesale energy prices are falling largely thanks to renewables," Tara Connolly, Greenpeace EU energy policy adviser, said. "But energy companies, which have invested heavily in fossil fuels and nuclear power, have kept household bills high."

The Commission is pushing for subsidies on renewables to be cut to a strict minimum as improving technology makes green energy progressively cheaper to produce.

It also says over-reliance on imported fossil fuels, notably from dominant gas supplier Russia, results in high costs. It predicts that by the middle of the century the European Union's bill for imported fossil fuels will reach around 600 billion euros per year, from about 400 billion now.

The drive to shift to renewable energy has run into stiff resistance from utilities, which say the grid cannot cope with too much intermittent solar and wind, and from industrial lobbies that have complained about high costs.

To further address the issue, the Commission paper said the EU executive would launch a retail market action plan before its summer break in August. ($1 = 0.7306 euros) (editing by Jane Baird)

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