France plans to move to progressive prices for electricity, gas, and water

The French government has presented a draft law to introduce progressive utility pricing.

The law, presented on September 5, covers water, electricity, and gas, and will be debated through to November. The government hopes that it will be cost-neutral, but this will depend upon the fine detail, and will be affected by how consumers react to the new rules.

Although more specific information has not been released, the aim is to have three distinct thresholds of tariffs, calculated by the kilowatt-hour, that progressively increase with volume. The tariffs will be adjusted for the number of people in the dwelling, the type of heating, the geographical location, and the quality of insulation. In practice, a household will therefore have an explicit amount of electricity that it can consume at a lower tariff than it currently faces. Above the limit, a higher tariff will apply in the successive two thresholds.

The aim of the price adjustment is twofold. Firstly, to reduce energy consumption by giving consumers a clear price signal regarding higher levels of use; and secondly, to provide assistance to the 4 million households in France that are described as "energy-precarious," defined as those who spend more than 10% of their income on energy costs.

Indeed, the Commission for Energy Regulation (CRE) has forecast that energy expenses will rise by 30% between now and 2016, making the topic one of intense political interest. The move to restrict energy prices follows a 2% cap in the rise of regulated electricity prices by the government this summer.

At face value, the law appears to be positive with regards to demand-side management, but the cost impact - and therefore the reception the law will receive from the major power and gas utilities EDF and GDF Suez -  is unclear. The government expects the measure to be cost-neutral; however, this will clearly depend on the details of the law and on households' response to the changes.

France's electricity and gas prices are already regulated, but suppliers still need to be able to cover production and distribution costs. For gas, in particular, the progressive pricing may pose a problem in light of the recent decision by the CRE to revoke the government's price freeze on gas in the fourth quarter of 2011, leaving the way clear for GDF Suez to retroactively charge its customers the difference for the period. 

Written by Yasmin Valji

Analyst, Datamonitor Energy & Utilities

Follow Yasmin on twitter: @YasminV_DMEN