EUROPEAN COMMISSION Brussels, 9.1.2019 SWD(2019) 1 final COMMISSION STAFF WORKING DOCUMENT Accompanying the document REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS Energy prices and costs in Europe {COM(2019) 1 final}



Contents Introduction 10 1 Electricity prices 13 1.1 Wholesale electricity prices 13 1.1.1 Evolution of wholesale electricity prices 14 1.1.2 Factors impacting the evolution of wholesale prices 18 1.1.3 International comparisons 23 1.2 Retail Electricity Prices 26 1.2.1 Household Electricity Prices 30 1.2.2 Industrial Electricity Prices 38 1.2.3 Small vs. Large Industrial Electricity Prices 44 1.2.4 International comparisons 51 2 Gas prices 54 2.1 Wholesale gas prices 54 2.1.1 Evolution of wholesale gas prices 55 2.1.2 Factors impacting the evolution of wholesale gas prices 60 2.1.3 International comparison 64 2.2 Retail gas prices 68 2.2.1 Household Natural Gas Prices 70

2.2.2 Industrial Natural Gas Prices 73 2.2.3 International comparisons 76 3 Oil and oil product prices 79 3.1 Crude oil prices 79 3.2 Wholesale prices of oil products 81 3.3 Retail prices of oil products 82 3.3.1 Methodology 84 3.3.2 General findings 84 3.3.3 Gasoline 87 3.3.4 Diesel 90 3.3.5 Heating oil 94 3.3.6 Gasoline vs diesel 97 3.3.7 International comparison 103 4 The EU energy bill 107 4.1 Introduction 107 4.2 Methodology 108 4.3 Drivers 110 4.4 Import bill calculation 114 5 Household energy expenditure and energy poverty 117 5.1 Energy products in household budgets 118

5.1.1 Energy expenditure (excluding transport) in households with low income 118 5.1.2 Energy expenditure (excluding transport) in households with middle income 120 5.1.3 Energy expenditures in the transport sector 123 6 Industry energy costs 125 6.1 Energy costs and competitiveness at macroeconomic level 128 6.1.1 Competitiveness drivers: EU vs G20 129 6.1.2 Impact of energy on the economy's competitiveness 139 6.2 Energy costs for industry 146 6.3 Exploring energy intensities 159 6.4 Energy costs drivers 163 6.4.1 Drivers of energy costs (Purchases of energy) 163 6.4.2 Impact of energy costs on Total Production Costs 168 6.4.3 Drivers of the energy costs as a share of production costs 169 6.5 International comparisons 171 6.5.1 Energy costs vs other G20 countries 172 6.5.2 Energy intensity of EU sectors vs other G20 174 6.5.3 Industrial electricity prices: EU vs G20 countries 177 6.5.4 Industrial gas prices: EU vs G20 countries 184 6.6 Case studies of selected Energy Intensive Industries 193 6.6.1 Scope and samples 193

6.6.2 Cross-Sectorial comparisons 195 6.6.3 Prices across Member States 199 6.6.4 Overview of results of specific case studies 208 7 Energy subsidies 211 7.1 Subsidies in the energy sector 216 7.1.1 Fossil fuel subsidies in the energy sector 217 7.1.2 Renewables 218 7.1.3 Nuclear 219 7.1.4 Other specific subsidies 221 7.2 Subsides beyond the energy sector 224 7.2.1 Fossil fuels subsidies beyond the energy sector 224 7.2.2 Sectors receiving subsidies beyond the energy industry 225 7.3 Impact of subsidies on energy prices for consumers 227 7.4 International comparisons of fossil fuel subsidies 231 8 The role of energy for government revenues and inflation 233 8.1 Government revenues from the energy sector 233 8.1.1 Energy taxes 233 8.1.2 Excise duties 237 8.1.3 Value added tax (VAT) 241 8.1.4 Tax revenues from oil products 242

9 Prices and costs and future investments 245 9.1 Introduction and definitions 246 9.2 Drivers of electricity costs and prices 247 9.2.1 Renewable costs are declining 247 9.2.2 Fossil fuel prices and carbon price 249 9.2.2.1 Gas price 249 9.2.2.2 Coal price 250 9.2.2.3 Oil price 250 9.2.3 Carbon price 251 9.3 Need for new capacities 252 9.3.1 Evolution of electricity demand 252 9.3.1.1 Age structure of fossil fuel fired power plants 254 9.4 Electricity prices vs costs up to 2030 in the EU 257 9.5 Investment in power production assets 258 10 Price regulation 263 10.1 Impact of price regulation on competition, prices, quality of services and investments 264 10.2 Price regulation in household gas and electricity markets 266 10.2.1 Share of households under regulated prices 267 10.2.2 Share of consumers under social tariffs 270 10.3 Impact of regulated prices on household retail markets 272

10.3.1 Impact on competition and consumer engagement 272 10.3.2 Market concentration 279 10.3.3 Impact on prices and costs 282 10.3.4 Impact on consumer perception 290 10.4 Impact of regulated prices on non-household retail markets 292 10.5 Impact of regulated prices on tariff deficits and investments 297 10.6 Dynamic pricing 298 10.6.1 Objective, methodological approach and assumptions 298 10.6.2 Preliminary results 301 10.6.3 Robustness of results and further research 307



List of Figures Figure 1 - Evolution of monthly average wholesale day-ahead baseload electricity prices in Europe, showing the European Power Benchmark and the range of minimum and maximum prices across the markets 14 Figure 2 - Evolution of wholesale electricity prices in Europe since 2016 15 Figure 3 - Regional market prices in the North-Western Europe coupled area 16 Figure 4 - The Central Eastern Europe average wholesale price and the EPB benchmark 17 Figure 5 - Regional market prices in Italy and South Eastern Europe 18 Figure 6 - Electricity consumption and economic growth 19

Figure 7 - Electricity generation mix in the EU-28 (actual power generation) 19 Figure 8 - Monthly electricity generation in the EU and the share of some generation sources in the EU electricity mix 20 Figure 9 - Monthly coal, natural gas and carbon price indexes, compared to the 2008 average price and the share of renewable energy (right hand scale) 21 Figure 10 - Net electricity flow position compared to domestic electricity generation in the European power regions 22 Figure 11 - Comparison of wholesale electricity prices in the EU with global trade partners 24 Figure 12 - Comparison of wholesale electricity prices in the EU with global trade partners 24 Figure 13 - Evolution and composition of the EU household price (DC). MR = Most representative 29 Figure 14 - Household rices in 2017 (most rep.) 31 Figure 15 - Composition of hosehold prices in 2017 (most rep.) 32 Figure 16 - Breakdown of household prices (DC) 33 Figure 17 - Composition of taxes in 2017 (Most rep.) 33 Figure 18 - Taxes, ees, levies and charges for EU households (DC) 37 Figure 19 - Evolution and composition of the EU industrial price (ID) 38 Figure 20 - Industrial (ID) electricity prices in 2017 39 Figure 21 - Composition of industrial (ID) electricity prices in 2017 39 Figure 22 - Breakdown of EU prices in 2017 (ID) 40 Figure 23 - Composition of taxes in 2017 (ID) 41 Figure 24 - Taxes, levies, fees and charges of industrial electricity prices 43 Figure 25 - Evolution of small (IB) and large (IF) industrial electricity prices 44 Figure 26 - Composition of small (IB) and large (IF) industrial electricity prices 45

Figure 27- Composition of small (IB) and large (IF) industrial prices in 2017. First 16 countries alphabetically. 46 Figure 28 - Composition of small (IB) and large (IF) industrial prices in 2017. Last 15 countries alphabetically. 47 Figure 29 - Composition of taxes on prices for small (IB) and large (IF) industrial electricity prices (2008-2017) 47 Figure 30 - Composition of taxes on prices for small (IB) and large (IF) industrial electricity consumers in 2017 47 Figure 31 - RES support costs for electricity consumers (DC=Household, IB=small, ID=median, IF=large) 48 Figure 32 - RES support in 2017 by consumer type and country. First 13 countries alphabetically 49 Figure 33 - RES support in 2017 by consumer type and country. Last 13 countries alphabetically 49 Figure 34 - Difference between household retail electricity prices and electricity wholesale prices 2008-2018, EUR2017/MWh 51 Figure 35 - Difference between industrial retail electricity prices and electricity wholesale prices, EU28 and other G20 countries, 2008-2018, EUR2017/MWh 52 Figure 36 - Selected wholesale gas prices in Europe 55 Figure 37 - The difference between the Platts North West Europe Gas Contract Indicator (GCI) and the Dutch hub price (TTF) 55 Figure 38 - Price formation in Europe 56 Figure 39 - Daily day-ahead prices at selected gas hubs from 2008 to mid-2018 57 Figure 40 - The monthly average price of oil (Brent) and oil-indexed gas contracts (Platts GCI) 59 Figure 41 - Daily spot prices of oil (Brent) and gas (at the Dutch TTF hub) 60 Figure 42 - Daily change of spot prices of oil (Brent) and gas (at the Dutch TTF hub) 60 Figure 43 - The monthly average price of oil (Brent) and gas (at the Dutch TTF hub), measured in EUR/MWh 61 Figure 44 - Monthly average gas price at the Dutch TTF hub and heating degree days in the Netherlands 62 Figure 45 - Daily gas price at the Dutch TTF hub and average daily temperature in the Netherlands from the beginning of 2013 to mid-2018 62 Figure 46 - Comparison of European, US and Japanese wholesale gas prices 63

Figure 47 - The ratio of European, US and Japanese wholesale gas prices 64 Figure 48 - Gas wholesale prices in the EU (weighted average), China, Japan and the US 65 Figure 49 - Gas wholesale prices in the EU (weighted average) and selected markets 66 Figure 50 - Composition of the EU household gas price (DC) 70 Figure 51 - Household gas prices in 2017 70 Figure 52 - Composition of household gas prices in 2017 71 Figure 53 - Composition of EU taxes on household gas prices 72 Figure 54 - Composition of EU prices for small (I3) and large (I5) industrial gas consumers 73 Figure 55 - Median (I3) and large (I5) industrial gas prices in 2017 74 Figure 56 - Composition of median (I3) and large (I5) industrial gas prices in 2017 74 Figure 57 - Composition of EU gas prices for median (I3) and large (I5) consumers 75 Figure 58 - Composition of taxes for median (I3) and large (I5) industrial gas consumers 75 Figure 59 - Difference between household retail natural gas prices and wholesale prices, EU28 and trading partners 76 Figure 60 - Difference between industrial retail natural gas prices and wholesale prices, EU28 and trading partners 77 Figure 61 - The Brent crude oil price from 2008 to mid-2018 79 Figure 62 - Crude oil (Brent) and European wholesale gasoline, diesel and heating oil prices from 2008 to mid-2018 80 Figure 63 - Crack spreads of gasoline, diesel and heating oil from 2008 to mid-2018 81 Figure 64 - Average retail price of oil products in the EU 84 Figure 65 - Average excise duty rates for oil products in the EU 85 Figure 66 - Average retail price of oil products in the EU, without taxes 85

Figure 67 - The retail price of gasoline in the EU 86 Figure 68 - The retail price of gasoline in the EU, without taxes 87 Figure 69 - The exercise duty rate of gasoline in the EU 88 Figure 70 - Average retail price of gasoline in the EU by price component 88 Figure 71 - Average retail price of gasoline in the first half of 2018 by Member State and price component 89 Figure 72 - The retail price of diesel in the EU 90 Figure 73 - The retail price of diesel in the EU, without taxes 90 Figure 74 - The exercise duty rate of diesel in the EU 91 Figure 75 - Average retail price of diesel in the EU by price component 92 Figure 76 - Average retail price of diesel in the first half of 2018 by Member State and price component 92 Figure 77 - The retail price of heating oil in the EU 93 Figure 78 - The retail price of heating oil in the EU, without taxes 94 Figure 79 - The exercise duty rate of heating oil in the EU 95 Figure 80 - Average retail price of heating oil in the EU by price component 95 Figure 81 - Average retail price of heating oil in the first half of 2018 by Member State and price component 96 Figure 82 - Average retail price of gasoline and diesel in the EU 97 Figure 83 - Average retail price of gasoline and diesel in the EU, without taxes 98 Figure 84 - Average excise duty rates for gasoline and diesel in the EU 98 Figure 85 - The difference between the average excise duty rate on gasoline and diesel 99 Figure 86 - Excise duty rates in individual Member States in 2008 and the first half of 2018 100

Figure 87 - the change of the difference between the gasoline and diesel excise duty rates between 2008 and the first half of 2018 101 Figure 88 - Excise duty rates for motor fuels in Belgium 101 Figure 89 - International comparison of retail gasoline prices 102 Figure 90 - International comparison of retail gasoline prices 103 Figure 91 - International comparison of retail diesel prices 103 Figure 92 - International comparison of retail diesel prices 104 Figure 93 - EU import dependency by fuel 107 Figure 94 - EU net imports of energy in 2016 (mtoe) 108 Figure 95 - EU net imports 110 Figure 96 - Comparison of European oil, gas and coal prices 111 Figure 97 - The USD/EUR exchange rate since 2013 112 Figure 98 - The estimated EU import bill 115 Figure 99 - Expenditures on household energy products for the poorest households in the EU Member States), and the share of energy in the total household consumption expenditure 118 Figure 100 - Expenditures on household energy products for the lower-middle income households in the EU Member States, and the share of energy in the total household consumption expenditure 119 Figure 101 - Expenditures on household energy products for households with middle income in the EU Member States, and the share of energy in the total household consumption expenditure 120 Figure 102 - The ratio of homes being not adequately warm for households being below the 60% of the median income and the share of energy products within the total expenditure for households in the third decile (lower-middle income) 121 Figure 103 - Expenditures on transport energy products for the poorest households in the EU Member States, and the share of transport energy in the total household consumption expenditure 122 Figure 104 - Expenditures on transport energy products for households with middle income in the EU Member States, and the share of transport energy in the total household consumption expenditure 123 Figure 105 - Overall competitiveness in EU and non-EU G20 129 Figure 106 - Results for selected favourable factors of competitiveness 133

Figure 107 - Results for selected unfavourable factors of competitiveness 134 Figure 108 - Overall productivity in the EU and G20 135 Figure 109 - Productivity and Efficiency of EU and non-EU G20 136 Figure 110 - Labour productivity in industry in EU and G20 137 Figure 111 - Labor productivity in Services in EU and G20 137 Figure 112 - User satisfaction on Energy infrastructure in EU and G20 138 Figure 113 - Elecriticity prices for industry in the EU and G20 in 2017 139 Figure 114 - Real Unit Energy Cost - manufacturing excluding refining 140 Figure 115 - Contribution to growth of RUEC by Real Prices and Energy Intensity 140 Figure 116 - Evolution of energy costs shares in production value 141 Figure 117 - Evolution of energy costs shars in production value for Manufacturing 142 Figure 118 - Breakdown of the energy consumption per energy carrier, EU, 2008-2015 averages 150 Figure 119 - Average energy cost shares per sector – based on available data points, split by energy carrier, 2008-2015 averages 150 Figure 120 - Energy costs shares in total production costs in manufacturing sectors, 2008-2015 153 Figure 121 - Energy costs shares in total production costs in non-manufacturing sectors 154 Figure 122 - Gross Operating Surplus in manufacturing sectors (average 2008-2015) 156 Figure 123 - Gross Operating Surplus in manufacturing in the EU and Member States, 2008-2015 157 Figure 124 - Energy intensity (consumption/value added in nominal terms) for the most energy intensive manufacturing sectors (average of available countries) 159 Figure 125 - Energy intensity (consumption/value added in nominal terms) for other manufacturing sectors (average of available countries) 160 Figure 126 - Energy intensity (consumption/value added in nominal terms) for non- manufacturing sectors (average of available countries) 161

Figure 127 - Drivers of energy costs (absolute changes) 164 Figure 128 - Drivers of change in energy costs in EU manufacturing sectors over 2010-2015 (%) 165 Figure 129 - Classification of sectors by comparing the dynamics of energy costs dynamics vs productions costs 170 Figure 130 - International comparision of energy costs shares for selected energy intensive sectors 171 Figure 131 - Energy costs shares in production value for the most energy intensive sectors in manufacturing, 2008-2015 172 Figure 132 - Energy costs shares in production value for other manufacturing sectors, 2008-2015 172 Figure 133 - Energy intensity international comparisons for the most energy intensive manufacturing sectors 174 Figure 134 - Energy intensity international comparisons for other manufacturing sectors 175 Figure 135 – Retail electricity prices for industry: EU vs China, Japan & US, 2008-2018 176 Figure 136 - Retail electricity prices for industry: EU vs other G20, 2007-2018 177 Figure 137 – Retail electricity indexes prices for industry: EU vs Argentina, Australia & India, 2008-2018 178 Figure 138 - Range of retail electricity prices for industry in the EU 181 Figure 139 - Box plot of EU28 industrial retail electricity prices 2008-2017 181 Figure 140 - EU28 industrial retail electricity prices 2008-2017, individual Member States lines visible, outliers named 182 Figure 141 - Retail gas prices for industry: EU vs China, Japan and the US, 2008-2018 183 Figure 142 - Retail gas prices for industry: EU vs other non-EU G20 countries, 2008-2018 184 Figure 143 - Retail gas indexes prices for industry: EU vs AU and MX, 2008-2018 185 Figure 144 - Max-min range of retail gas prices for industry in the EU, 2008-2018 188 Figure 145 - Box plot of industrial gas prices, 2008-2017 188 Figure 146 - EU28 industrial retail natural gas prices 2008-2017, individual Member States lines visible, outliers named 189

Figure 147 - Average industry electricity (left) and gas (right) prices in the EU and among the top 15 EU trade partners (current prices) 190 Figure 148 - Impact on EU industry unit costs in a counterfactual scenario where EU energy prices over 2007-2016 are comparable to energy prices faced by the EU’s main trading partners 191 Figure 149 - Impact on EU industry prices in a counterfactual scenario where EU energy prices over 2007-2016 are comparable to energy prices faced by the EU’s main trading partners 191 Figure 150 - Plant electricity consumption and average electricity prices by sector, 2016 (185 observations) 194 Figure 151 - Average electricity prices by consumption level, 2008 – 2017 (2008: 120 observations; 2009: 73; 2010: 141; 2011: 86; 2012: 154; 2013: 161; 2014: 161; 2015: 158; 2016: 185; 2017: 182) 195 Figure 152 - Plant electricity consumption and average electricity costs by sector, 2016 (185 observations) 196 Figure 153 - Plant natural gas consumption and average natural gas prices by sector, 2016 (165 observations) 197 Figure 154 - Average natural gas prices by consumption level, 2008 – 2017 (2008: 110 observations; 2009: 74; 2010: 129; 2011: 81; 2012: 137; 2013: 145; 2014: 149; 2015: 147; 2016: 165; 2017: 163) 198 Figure 155 - Structure of average electricity prices in the surveyed plants in the NWE region (France, Germany, the Netherlands and the UK) in absolute terms (€/MWh), 2008 – 2017 201 Figure 156 - Structure of average electricity prices in the surveyed plants in the SE region (Portugal, Italy, Spain and Greece) in absolute terms (€/MWh), 2008 – 2017 202 Figure 157 - Structure of average electricity prices in the surveyed plants in the CEE region (Poland and Bulgaria) in absolute terms (€/MWh), 2008 – 2017 203 Figure 158 - Structure of average natural gas prices in the surveyed plants in the NWE region (France, Germany, the Netherlands and the UK) in absolute terms (€/MWh), 2008 – 2017 204 Figure 159 - Structure of average natural gas prices in the surveyed plants in the SE region (Portugal, Italy and Spain) in absolute terms (€/MWh), 2008 – 2017 205 Figure 160 - Structure of average natural gas prices in the surveyed plants in the CEE region (Poland and Bulgaria) in absolute terms (€/MWh), 2008 – 2017 206 Figure 161 – Financial support by sector in the EU-28 (expressed in €2017bn) 213 Figure 162 – Financial support by energy group (expressed in €2017bn) 214 Figure 163 – Financial support in 2016 by energy source and EU Member States (expressed in €2017bn and as the percentage of Gross Domestic Product - GDP) 215 Figure 164 – Subsidies in the energy sector, by generation technology 216 Figure 165 – Subsidies to fossil fuels in the energy sector, by generation technology 217 Figure 166 – Support to renewable energy sources in the EU Member States 218

Figure 167 – Nuclear R&D support in the EU Member States 219 Figure 168 – Support to nuclear decommissioning in some EU Member States 220 Figure 169 – Free emission allowances allotted to stationary installations, to the aviation sector, and the evolution of the carbon price in the ETS system 221 Figure 170 – Capacity payment support in some EU Member States 222 Figure 171 – Financial support to interruptible load schemes in some EU Member States 223 Figure 172 – Fossil fuel subsidies in different sectors in the EU 224 Figure 173 – Subsidies to oil and petroleum products in different sectors in the EU 224 Figure 174 – Distribution of support among energy sources in 2016 in the EU 226 Figure 175 – Retail electricity prices, recoverable taxes and tax relieves paid by large industrial (energy intensive) and median level electricity customers in some EU Member States in 2016 227 Figure 176 – Retail gas prices, recoverable taxes and tax relieves paid by large industrial (energy intensive) and median level gas customers in some EU Member States in 2016 228 Figure 177 - Retail electricity prices, recoverable taxes and tax relieves paid by households in some EU Member States in 2016 229 Figure 178 - Retail gas prices, recoverable taxes and tax relieves paid by households in some EU Member States in 2016 229 Figure 179 - The impact of loans and grants for energy efficiency measures and/or other investments on EU28 household and industry energy consumption between 2008 and 2015 230 Figure 180 – Fossil fuel subsidies in the world and in the EU 231 Figure 181 - Energy taxes in the EU-28 233 Figure 182 - Energy taxes as a percentage of tax revenue and of GDP in 2016 234 Figure 183 - Energy taxes by economic activity 234 Figure 184 – Average energy tax for 1 toe of gross inland energy consumption in the EU-28 235 Figure 185 – Average energy tax for 1 toe of gross inland energy consumption in 2016 236 Figure 186 - Excise duty revenues from energy consumption 237

Figure 187 - Exercise duty revenues from energy consumption, adjusted for inflation (in 2015 euros) 238 Figure 188 - The share of excise duty revenues by energy product 239 Figure 189 - The share of excise duty revenues by energy product, 2017 239 Figure 190 - The average standard VAT rate in the EU 240 Figure 191 - Estimated tax revenue from gasoline, diesel and heating oil 242 Figure 192- Ratio between volume traded annually on day-ahead market and electricity final 246 Figure 193 - Evolution of investment costs of renewables 246 Figure 194 - Expected development of investment costs of renewable energy technologies in the long term under different scenarions (lines) and uncertain factors (range): example of solar and wind (left: utility scale photovoltaics, right: offshore wind turbines) 247 Figure 195 - Monthly gas import price 248 Figure 196 - Monthly coal import price 249 Figure 197 - Daily oil price (Brent) 250 Figure 198 - Daily ETS price 250 Figure 199 - Daily ETS price in 2018 251 Figure 200 - Final electricity consumption in the EU28, historical data and projections. 252 Figure 201 - EU 2015 Installed gas capacity by age [MW] 253 Figure 202 - EU 2015 installed coal capacity 254 Figure 203 - EU 2015 installed oil capacity 254 Figure 204 - additions and retirement of gas power plants. 255 Figure 205 - additions and retirement of coal power plants. 255 Figure 206 - additions and retirement of oil power plants. 256

Figure 207 - EU28: electricity prices and cost 257 Figure 208 - New power generation capacity - PRIMES projections. 258 Figure 209 - New power generation investments - PRIMES projections. 258 Figure 210 - Household price regulation in EU Member States in 2016 266 Figure 211 - Share of consumers under regulated prices in EU Member States in 2016 267 Figure 212 - Evolution in the share of households under regulated prices 268 Figure 213 - Share of households under social tariffs in EU Member States 269 Figure 214 - Evolution in the share of households under social tariffs in EU Member States 270 Figure 215 - Number of active suppliers per 100,000 citizens in 2016 272 Figure 216 - Evolution in the number of active suppliers per 100,000 citizens in 2016 274 Figure 217 - Annual switching rates in 2016 275 Figure 218 - Evolution in annual switching rates 276 Figure 219 - Type of electricity and gas contracts available and offers per supplier 278 Figure 220 - Market share of the 3 largest suppliers 279 Figure 221 - Evolution in market concentration 280 Figure 222 - Prices for electricity (2016) and gas (2015) on household markets 281 Figure 223 - Evolution in prices for electricity (2016) and gas (2015) on household markets 282 Figure 224 - Energy component mark-ups 284 Figure 225 - Evolution in energy component mark-ups 285 Figure 226 - Energy expenditure as share of disposable income 286

Figure 227 - Energy poverty 287 Figure 228 - Evolution of energy poverty 288 Figure 229 - Consumer perception of the market in 2015 290 Figure 230 - Non-household price regulation from a geographical perspective 291 Figure 231 - Share of non-household consumption under regulated prices 292 Figure 232 - Energy and supply component for electricity (2016) and gas (2015) on the non-household consumer market 293 Figure 233 - Energy and supply component for electricity (2016) and gas (2015) on the non-household consumer market 294 Figure 234 - Energy and supply component for electricity (2016) and gas (2015) on the non-household consumer market 295 Figure 235 - Potential savings for households from switching to dynamic pricing in selected Member States ; by consumption band 302 Figure 236 - Elements to understand consumer behaviour and agregation for analysis 305 Figure 237 - Potential savings from switching to DPC with alternative mark-ups in Italy 307



List of Tables Table 1 - Key figures on the evolution and drivers of retail electricity prices 26 Table 2 - Composition of small (IB) and large (IF) industrial prices 44 Table 3 - The ratio of European, US and Japanese wholesale gas prices 64 Table 4 - Key figures on the evolution and drivers of retail gas prices 68 Table 5 - Estimated average gas import prices by supplier (€/MWh) 109

Table 6 - EU crude oil import bill in 2013-2017 113 Table 7 - EU gas import bill in 2013-2017 113 Table 8 - EU hard coal import bill in 2013-2017 114 Table 9 - Coverage of manufacturing sectors 146 Table 10 - Coverage of other sectors, excluding manufacturing 147 Table 11 - Energy costs shares in total production costs for manufacturing and non-manufacturing, 2008-2015 151 Table 12- Drivers of total production costs in manufacturing sectors 167 Table 13 - Changes in energy costs and total production costs by sector 168 Table 14 - Changes in retail industrial electricity prices compared to EU prices, constant 2017 EUR/MWh 179 Table 15 - Factors in observed industrial retail electricity price changes per country, nominal prices, per MWh 180 Table 16 - Changes in the industry retail natural gas price differential compared to EU prices, constant 2017 euros per MWh 186 Table 17 - Factors in observed industrial retail natural gas price changes per country, nominal prices, per MWh 187 Table 18 - Size and EU representativeness of the samples in the bottom-up analysis 193 Table 19 - Key plant level results from the case studies (2016) – EU values 207 Table 20 - Overview of tariff deficits in Member States between 2008-2016 296 Table 21 - Composition of user group for estimating the DPC 303 Table 22 - Estimated average annual savings per Band, EUR, 2016 303 Table 23 - Estimated average annual savings per Band, share of energy supply component, 2016 304 Table 24 - Estimated number of consumers losing out from the switch to DPC 304





Introduction The European's Commission Clean energy for all Europeans package adopted in November 2016 included capital energy policy initiatives to roll out the Energy Union and set strengthened foundations to meet the EU's climate and energy targets and its international commitment under the Paris Agreement. The (previous) 2016 energy prices and costs report was part of that package and provided evidence assessing and underpinning the need for various European energy policy actions. Two years after, most of the initiatives of that package have already been agreed between Parliament and Council and will start to be implemented soon. In November 2018, the European Commission has just presented the Long-term EU strategy for the reduction of greenhouse gas emissions in accordance with the Paris Agreement. In a similar vein as in 2016, the 2018 edition of the energy prices and costs report comes at a timely moment and contributes to assess energy policies on the basis of the new evidence coming from the analysis of energy costs, prices and support interventions. The evidence of the report highlights the important role of international fossil fuel prices in driving energy prices in the EU making the case for pursuing our efforts to decarbonise our energy system. Data also shows the impact of dollar-denominated international energy prices on our energy bill, underpinning our efforts to reduce dependence on fossil fuels and highlighting the benefits of pricing the transactions of energy products in euros to reduce the uncertainty brought by exchange rate volatility. The first part of the report (Part I – Energy Prices, comprising Chapters 1, 2 and 3) looks at the developments on wholesale and retail energy prices for electricity, gas and oil products between 2008 and 2017-18. On retail prices, the European Commission has again conducted an ad hoc data collection of the cost elements making up retail prices. The report presents the most detailed available breakdown of these elements affecting prices, in particular the various taxes and levies, and provides an insight on the evolution, composition and drivers of retail prices. International comparisons of the prices for petroleum, gas and electricity products are also presented in the chapters of Part I. The impact of the energy costs on the economy, the industry and households is addressed in the second part of the report (Part II – Energy costs). Chapter 4 on the import bill assesses the developments in the EU energy bill and the reasons behind them. Chapter 5 looks at impact of energy prices and costs on energy poverty including an assessment of the energy expenditure shares by income level. Finally, Chapter 6 analyses the impact of energy costs on the (cost) -competitiveness of the European industry. The analysis includes an assessment of the costs for whole industry and services sectors and for 45 specific manufacturing and non-manufacturing sectors, including energy intensive industries. Their energy costs shares, energy intensities and energy prices are examined and, to the extent possible by the available data, compared with those in the third countries. The chapter presents a combination of results coming from studies using highly aggregated statistical data and sectorial data collected at plan level. Part II is complemented by Annex 1, which presents case studies for a number of sectors/subsectors of energy intensive industries, and by Annex 2, which includes sectorial decomposition analyses of energy costs. Government interventions and revenues from energy products are addressed in Part III of the report. Chapter 7 presents the result of the analysis of the data collected on support interventions across member states (more than 1400 types of interventions) from 2008-2017. This constitutes the most updated and detailed inventory of energy subsidies of the EU Member States. The impact of these subsidies on the prices and costs for consumers and industry, particularly energy intensive sectors, is also estimated using a combination of analytical and econometric techniques (that distinguish the impact on prices at wholesale and retail level). Chapter 8 also assesses the nature and importance of energy tax revenues in government's budgets. Part IV of the report (Chapter 9), looks forward, and assesses the relation between future expected prices and costs in the electricity market and how this can affect the incentives for investment in the different energy technologies in the 2030 horizon. It analyses the various underlying factors driving the price-cost relation together with expected developments on future demand which is significantly influenced by our policy decisions. Finally, Part V looks at the impact of regulation on prices. Chapter 10 assesses in detail the impact of price regulation on the existence of competitive prices, quality of service and the propensity to invest between 2008 and 2016. It looks at how price regulation/de-regulation affects Member States by analysing indicators on various groups of Member States, those which with have been fully liberalised prices (prior or during the period of study) versus those which are in transition to price deregulation (less than 50% of the market is with price regulation) and those which still have significant part of their market (more than 50%) with price regulation. Finally, on the basis of data collected from Member States, section 10.2 of the chapter includes estimates of the benefits from switching from regulated prices to fully liberalised dynamic price contracts. Country-factsheets with energy prices and costs key indicators are included in Annex 3.

PART I ENERGY PRICES





1Electricity prices 1.1Wholesale electricity prices ¾Over the last ten years wholesale electricity prices showed a significant volatility in Europe, reaching their peak in 2008 and their lows in early 2016. Since spring 2016, when the European Power Benchmark (EPB) index, in parallel with many wholesale electricity market prices, fell to ten year lows and reached 30 €/MWh, there was a general price recovery and by August 2018 the EPB went up to 60€/MWh. ¾Price convergence across the European regional wholesale markets varies over time. Wholesale electricity prices tended to diverge more in general price spike periods (e.g.: in 2008 or in early 2017), or when low prices could be observed in some local markets (e.g.: periods of abundant hydro power generation in the Nordics). ¾Different regional markets in Europe face different prices, owing to differences in local generation mixes and interconnection capacities. ¾EU and national level policies resulted in increasing wind and solar generation in many European countries. Integration of renewable generations sources to the grid and investments in infrastructure capacities are indispensable to accomplish a properly working internal electricity market in the EU. Market couplings now cover the majority of EU wholesale markets, enabling more efficient cross-border trade and better convergence of prices between neighbouring markets. ¾Several factors impacting wholesale electricity prices can be identified both on the demand side and on the supply side of the electricity market. Since 2008 GDP in the EU-28 was up by 10%, while at the same time electricity consumption decreased by 6%, pointing to less electricity intensity of the EU economy. On the supply side there were fundamental changes in the EU electricity generation mix since 2008: the share of fossil fuels decreased while the share of renewable energies practically doubled, reaching an estimated 38% in April 2018. ¾The price of coal and natural gas has an important role in shaping electricity generation costs, as coal-fired and gas-fired generation ensures the marginal generation costs on the electricity market. Coal and gas prices peaked in 2008; then fell sharply in 2009. After a recovery, between 2012 and 2016 they decreased again, whereas in the last two year they rebounded. After being at low levels for several years, emission allowance prices tripled between mid-2017 and mid-2018, starting to impact again wholesale electricity prices. Wholesale electricity prices showed a strong co-movement with fossil fuel prices. ¾In international comparison, which is useful for analysing the competitiveness of electricity intensive industries, wholesale electricity prices in the EU were higher than in the US, Canada, Australia and Russia during most of the time in the last ten years, however, they were lower than prices in China, Japan, Mexico, Turkey, Brazil and Indonesia. Electricity price differentials between the EU and its trading partners do not give in all cases a comprehensive explanation for competitiveness of products manufactured by energy intensive industries, other factors of competitiveness need to be taken into consideration. 1.1.1 Evolution of wholesale electricity prices

Over the last decade, wholesale electricity prices in the European markets showed significant volatility. In 2008, as all energy commodity prices reached their top, wholesale electricity prices also peaked. Subsequently during 2009, in parallel with the economic crisis the wholesale electricity prices fell back. Between 2010 and 2012 a solid price recovery took place, however, in the following four years a downward trend could be witnessed, and in early 2016 wholesale electricity prices fell to a decade low in many European markets. Compared to these lows, wholesale electricity prices increased until mid-2018 again. The next chart ( Figure 1 ) shows the evolution of the European Power Benchmark (EPB) and the range of minimum and maximum wholesale electricity prices in each month between 2008 and 2018. EPB is an index computed as the weighted average of the day-ahead prices of the most liquid wholesale electricity markets, serving as a general European benchmark,. In different periods convergence across European markets reached a different degree; in the periods of general price spikes (e.g.: in 2008 or in early 2017) prices became more divergent, however, very low prices in some national markets (e.g.: Nordic markets during summertime, a high level of hydro power generation, or markets with high share of variable renewable penetration) can also lead to significant price differentials across Europe. Source: Platts, European power markets Zooming on the market developments of the last two years (since the publication of the 2016 edition of the Energy Prices and Costs in the EU report), , we can see that in the second half of 2016 wholesale electricity prices started to increase, owing to higher electricity generation costs in parallel with increasing coal and gas prices (see Figure 2 ). This increase was reinforced at the beginning of 2017 as an ongoing cold weather, coupled with lower than usual nuclear electricity generation in some Western European countries (mainly France and Belgium), resulted in high wholesale electricity prices. At the end of 2017 safety inspections also reduced the availability of nuclear fleet in the same markets. All-in-all, since spring 2016, when the EPB index was around 30 €/MWh, a measurable wholesale price increase could be observed by August 2018, as the benchmark was above 60 €/MWh in that month. Source: Platts, European power markets As it was already mentioned, there might be significant differentials in wholesale electricity prices across Europe in some periods, thus it is worth taking a look at the price evolution of the regional markets. Figure 3 shows the regional wholesale electricity prices in the North Western Europe (NWE) market coupling area, including Central Western Europe (Germany, France, Austria and the Benelux), the UK, the Nordic markets (Norway, Sweden, Denmark, Finland and the Baltic States) and Iberian market (Spain and Portugal). Nordic markets had normally the lowest wholesale price across Europe over the last two years, owing to the important role of hydro power generation and increasing of wind and solar. In Central Western Europe (CWE), where prices were also lower than the EPB during most of this time period, increasing renewable penetration and the important role of nuclear power resulted in competitive electricity generation costs. In the Iberian region prices significantly impacted by hydro reserves and generation; from mid-2016 to the beginning of 2018 a dry period resulted in lower than usual hydro power generation that increased the wholesale price level above the EPB. During most of the time in 2016-2018 the highest wholesale prices could be observed in the UK; owing to significant electricity import needs of the country and the climate change levy that directly impacts the UK wholesale electricity price. Although the NWE region is the largest flow based market coupled area in Europe, significant differences in wholesale prices exists across its different regions. This suggests further integration of all electricity generation sources (especially variable renewables like wind and solar) and further investment in infrastructure (e.g.: interconnection capacities) could help to diminishes cross-market price differentials. Source: Platts, European power markets

In the Central and Eastern Europe region (CEE – Poland, Czech Republic, Slovakia, Hungary, Romania, Croatia and Slovenia) prices behaved similarly to the European benchmark between 2016 to (August) 2018 (see Figure 4 ). Besides abundant fossil fuel (mainly coal and lignite) and nuclear power generation in the region as a whole, market prices in the Central Eastern Europe are impacted by electricity imports from Central and Western Europe and the Balkans, where hydro generation is important. At the end of 2016 and 2017, when nuclear availability in the CWE region was low due to the aforementioned reasons, prices in the CEE region were lower than in Western Europe. In the CEE region four national markets (Czech Republic, Slovakia, Hungary and Romania) are coupled and wholesale electricity prices are well aligned in the majority of trading hours. Poland is price coupled with Sweden (and thus with the NWE region). Croatia and Slovenia are not coupled with the rest of the CEE region. Source: Platts, European power markets In Italy and Greece wholesale electricity prices between 2016 and 2018 so far were usually higher than the EPB benchmark ( Figure 5 ). Italy has traditionally been a net electricity importer, as the cost of import (mainly from the CWE region) is competitive to the domestic, primarily gas-fired power generation. During the summer period renewable generation picks up in Italy and imports are lower. Greece is also traditionally net electricity importer, the country's domestic production is largely based on domestic lignite and gas fired generation. Imports from the Balkans are competitive against domestic generation. Bulgarian wholesale prices were however lower than European prices between 2016 and 2018 so far, owing to favourable costs of domestic electricity generation (largely based on solid fuels and nuclear). Bulgaria is normally a net electricity exporter, but in some periods (e.g.: the cold snap in January 2017) exports were banned Source: Platts, European power markets 1.1.2 Factors impacting the evolution of wholesale prices Wholesale electricity prices are determined by market forces. In this section we look at demand side and supply side factors that explain their evolution. On the demand side of the electricity market, residential electricity consumption is determined by needs for various purposes, for example lighting, heating and using household appliances. For businesses, the consumption of electricity is mainly determined by the level of economic activity, which can be measured by the evolution of the Gross Domestic Product (GDP). The next chart ( Figure 6 ) shows that electricity consumption in the EU has strong seasonality (see blue dashed line in Figure 6). During wintertime the industrial activity and the lighting and heating needs of households are higher than in summertime, all this resulting in higher electricity consumption during the winter period. In order to assess the relation between electricity consumption and economic activity we need to compare their trends. The seasonality of electricity consumption can be mostly eliminated by applying a four-quarter moving average (red line), which can then be compared to the evolution of the overall economic activity. In the second quarter of 2018 GDP in the EU was up by more than 10% compared to 2008; (after the crisis in 2008-2009 the recovery took several years) at the same time electricity consumption was down by 6%. This decoupling of the GDP trend from the electricity consumption shows a decreasing electricity intensity of economic activity over the last ten years.

Source: Eurostat On the supply side of the wholesale electricity market, it is the electricity generation mix, the marginal costs of the generation technologies and the electricity imports, as competing alternative that determine the overall generation costs and electricity prices. The next chart ( Figure 7 ) shows the changes in the shares of the generation technologies in the EU electricity mix between 2008 and the first quarter of 2018. The share of fossil fuel generation (lignite, coal, gas and oil) decreased significantly (from 54% in 2008 to 37% in 2017 and to 34% in January-August 2018). At the same time the share of renewables (including wind, solar, hydro and biomass) increased from 17% to 33%. The share of nuclear remained practically constant, showing minor changes from one year to another. Source: Eurostat and ENTSO-E. *2017 and 2018 Jan-Aug data are not fully comparable with earlier periods, as a part of biomass generation seems to be reported under 'Other' Within renewables, the share of hydro power remained constant over time (although the hydro share can vary on the short term depending on weather conditions, namely the amount of precipitation). The increase in the share of renewables within the EU electricity generation mix was largely owing to wind power, whose share went up from 3.5% to 12% between 2008 and 2017 (in some periods, for example in December 2017 the share of wind was almost 17%). The amount of generated electricity from the main sources and their share in the total generation can also be seen in Figure 8 , Nuclear energy had an important but slightly decreasing share over the last two-three years in the EU. Its variability is small and mainly due to maintenance cycles. Both wind and solar power had an intra-annual seasonality in the EU over the last few years: while the share of solar increased during summertime, the share of wind generation was the highest in the stormy wintry period. In April 2018 the combined share of wind and solar was 19% in the EU electricity generation mix. Biomass had a relatively stable share over time. Hydro availability strongly depended on weather and the amount of precipitation. Both coal and gas had higher share in winter periods, however, coal, as baseload technology had a smaller seasonality than natural gas. Source: ENTSO-E Besides the generation mix the marginal cost of each generation technology impacts the supply of electricity on the wholesale market. Generation technologies like wind, solar, hydro have very low or negligible marginal generation costs. Nuclear and biomass also have low marginal costs, whereas coal, gas and oil fired generation have higher marginal generation costs, so these latter normally set the marginal cost on the market; they are on the higher end of the electricity supply curve (the so-called merit order curve). Variable renewables (wind, solar) and other low marginal cost technologies can impact the total electricity supply by shifting the merit order curve towards the right (more generation at the same cost level) and thus result in lower equilibrium price assuming the same electricity demand curve. Figure 9 shows the monthly coal, gas and emission allowance (carbon) prices, compared to the average of 2008, and the share of renewable sources in the EU electricity generation mix. Both coal and gas prices, after reaching a peak in 2008, fell back amid of the economic crisis in 2009, and recovered in 2010-2011. After 2012 both coal and gas prices started to decrease and in the first half of 2016 they reached the lowest since the crisis year of 2009. In 2016-2018 they rebounded from these low levels. If looking at the evolution of wholesale electricity prices (see Figure 1 ) there is a high degree of correlation between fossil fuel prices and the wholesale electricity market. However, increasing share of renewables (between 2008 and 2018 the share of renewables practically doubled in the EU generation mix) had a downward impact on the wholesale market. A recent study estimates conducted by the EC (Trinomics et altri, 2018) that one percentage point increase in the share of renewables in Germany results in a decrease of the wholesale electricity price by 0.5 €/MWh. Carbon prices showed a sharp decrease between 2008 and spring 2013, as they went down by 80% (in June 2008 the average carbon price peaked at 28 €/MtCO2e, while in April 2013 it was below 4 €/MtCO2e). Since then until mid-2017 they showed only minor variations, not being able to significantly impact competition between coal, gas and renewables, and not being effective in driving investments towards the decarbonisation of the European electricity sector. However, as market players anticipated that regulatory changes in the so-called Market Stability Reserve of the EU Emission Trading System might reduce the oversupply of allowances in the carbon market – a measure to enter into force as of January 2019 – the price of emission allowances doubled between mid-2017 and mid-2018, reaching 21 €/MtCO2e by the end of August 2018, which was the highest since October 2008.

Source: ENTSO-E National and EU level policies played a role on incentivising the increase of the share of variable renewable technologies. EU Member States have to fulfil their 2020 renewable objectives, for which different instruments, such as feed-in-tariffs, feed-in-premiums, renewable quota obligations, etc. have been implemented. Increasing renewable capacities and less reliance on fossil fuels, in parallel with moderate growth in demand for power, have led to overall overcapacities in many European electricity markets, resulting in a downward pressure on wholesale electricity prices. Furthermore, as the integration of the European wholesale electricity markets moves forward, the importance of cross-border electricity trade increases and market-based instruments, such as the aforementioned coupling of neighbouring markets have been implemented, contributing to more efficient cross-border electricity trade, and generally better convergence of wholesale electricity prices. EU policies aim at achieving a better market integration through improving market liquidity, cross border trade and better integration of variable renewable generation sources to the power grid. At EU level electricity imports do not have significant influence on wholesale market prices as extra-EU electricity imports are negligible compared to the bloc's total consumption. However, looking at individual power regions (see Figure 10 ) the situation is different, as some regions (e.g.: the Baltic states and Italy) might have significant import needs on the top of their domestic production to satisfy all consumption needs. Other regions, such as Central and Western Europe, the Nordic region or South Eastern Europe recently, produce more electricity than their domestic needs, therefore they are net exporter. As electricity normally flows from low priced areas to higher priced ones, net exporter regions have lower wholesale prices as net importers. Source: ENTSO-E 1.1.3International comparisons Comparing the European electricity benchmark wholesale price index (EBP) with the wholesale prices in the most important trading partners of the EU can provide a useful analysis on how energy costs differentials can impact the competitiveness of European energy intensive industries with a high trade exposure. Electricity costs are only one factor of international competitiveness and other aspects (such as business environment, labour costs, etc.) are also important. A more detailed analysis of the impact of prices on competitiveness can be found in chapter 6. Figure 11 shows that, since 2008, wholesale electricity prices in the US have been for most of the time lower than in the EU, with the EU-US price ratio reaching the magnitude of 2 sometimes. In contrast, prices in Japan showed a huge increase after the Fukushima nuclear incident in March 2011, and as nuclear capacities were put offline, and the increasing reliance on gas fired generation resulted in Japanese prices being 3-4 times as the EU average between 2012 and 2014. Since 2016, as nuclear capacities were gradually put back in operation, the wholesale price gap between Japan and the EU decreased. In China the wholesale electricity prices have been constantly higher by several magnitudes (2-3) than in the EU, implying that competitiveness problems of some energy intensive industries (e.g.: steel sector) vis-à-vis China do not actually stem from electricity prices. Figure 12 shows some further examples on wholesale prices of important EU trade partners. In Canada wholesale prices were one of the lowest over the last ten years among countries presented below. In Australia, based on competitive domestic coal fired generation, wholesale prices were also lower than in the EU (however in the summer period in 2017 there were some price spikes). In Russia wholesale electricity prices were also lower than in the EU. On the other hand, prices in Mexico and Turkey, albeit following a decreasing trend, were higher than the European benchmark. Prices in Indonesia were comparable with the EPB between 2009 and 2013, however, the price gap with Europe has widened since and at the end of 2017 local wholesale electricity prices were twice as high as in Europe. Among all analysed countries wholesale electricity prices were the highest in Brazil.

Source: Trinomics et atri study (2018) Source: Trinomics et altri study (2018)



1.2Retail Electricity Prices Main findings The last two years brought major departures from decade long trends in the evolution, composition and drivers of electricity prices: ¾The EU household price decreased for the first time. This means that from 2016 to 2017 prices fell for all consumer analysed types. ¾The decade long trend of taxes and network charges driving household prices up also came to an end. Taxes kept increasing for all industrial consumer types, albeit these increases were smaller than the decreases in energy components, leading to falling prices. ¾Progress towards the completion of the single energy market continued. This is reflected by the fact that national energy components are gradually converging: they became 15% less spread out since 2008. For industrial consumers even total prices converged by 8%, as such prices are less impacted by varying national taxation. ¾The energy component, which consists mostly of wholesale prices, remained on a steadily decreasing trajectory due to EU policies, such as market coupling and increased interconnection capacities. The energy component diminished both in absolute and relative terms. In other words the only part of the price which is set by market forces is contracting while the share of the regulated part is growing, reaching 40% EU- wide. ¾Wholesale prices have been increasing since the spring of 2016. This development has not yet factored in to the energy component of retail prices. Similarly, decreasing wholesale prices in the period 2012 to 2016 were not fully passed on to retail prices. ¾Electricity prices remained heavily impacted by policy support costs and fiscal instruments, albeit to a varying degree across Member States. ¾The cost of supporting renewable energy also started to fall for households after a decade of steep increases. This is remarkable as the share of renewables in the EU's generation mix kept growing. RES support costs decreased in the last reporting year by 1% for households, but increased by 7% for medium industrial and by 17% for large industrial consumers. RES levies ranged from 1 to 73 EUR/MWh across reporting countries. ¾Excise duty rates range from 5 to 122 EUR/MWh, while VAT rates spread from 6% to 27% displaying a highly differentiated picture of energy taxation across the EU. ¾The EU household electricity price grew annually by 2.1% since 2008 and reached 195 EUR/MWh in 2017. The EU medium industrial electricity price grew at the annual rate of 1% and averaged at 103 EUR/MWh in 2017. The EU price for large industrial consumers even experienced a decrease of 0.3% annually and reached 80 EUR/MWh by 2017, down from 83 EUR/MWh in 2008.

Methodological framework Consumer type Household (DC) Industrial (ID) Large Industrial (IF) Component Annual growth Share 2017 ∆ Share Annual growth Share 2017 ∆ Share Annual growth Share 2017 ∆ Share Energy -1.5% 33% - 12 p.p. - 4.7 % 40% - 28 p.p. - 4.8% 49% -25 p.p. Network +2.5% 27% + 1 p.p. + 3.5% 22% + 5 p.p. + 2.7% 17% + 4 p.p. Taxes + 6.1% 40% + 11 p.p. +12.3% 38% + 23 p.p. + 11% 34% +21 p.p. Total 2.10% + 1% - 0.3% Source: DG ENER in-house data collection Aim and scope of the chapter The following chapter analyses retail electricity prices. It takes an in- depth look at the evolution, composition and drivers of prices paid by final consumers on EU as well as on national level in 30 European countries from 2008 to 2017. The analysis serves as an objective, evidence based tool to determine how the composition of retail prices changed over time, how did various policies and fiscal instruments impact prices and which elements contribute the most to increasing or decreasing prices. The data collection designed and conducted specifically for the purpose of this report, introduces a high level of harmonization and transparency. This allows for the comparison of price developments over time and across countries. A Decade of Data The chapter is based on an in-house data collection by the Directorate General for Energy of the European Commission (DG Energy). Data for this in-house survey was provided by the competent authority of each reporting country, in most cases the statistical office, ministry or regulator representing the country in the European Statistical System. Data was provided by 26 EU Member States and 3 non-member countries, Montenegro, Norway and Turkey. Greece and the United Kingdom provided no data. Figures for these countries are substituted by Commission estimates. Structure along Eurostat legislation The chapter is structured along different consumer types of the two energy products. Consumer types are defined by Eurostat methodology under Regulation (EU) 2016/1952 of the European Parliament and of the Council of 26 October 2016 on European statistics on natural gas and electricity prices. It differentiates household and industrial consumers, whereas both consumer types are further broken down into consumption bands. Consumption bands cover different volume ranges of annual consumption. Different bands are applied to electricity and natural gas. The chapter commences by examining the most representative household electricity price on EU level and in each reporting country. Next, the chapter looks at electricity prices paid by industrial consumers. It differentiates between 3 levels of industrial consumption in order to provide the best possible picture of a diverse group of consumers, ranging from small businesses to manufacturing industries consuming large amounts of energy. The chapter first examines prices paid by industrial consumers with a median volume of consumption. This consumer band is often used to describe economy- wide industrial price developments. The analysis is completed by a comparison of prices paid by consumers of small versus large volumes of electricity. General observations that hold for all bands are presented only under the section of household prices and are not repeated in each section. Harmonized methodology for comparable results

Total prices provide no information on the drivers of price developments. To facilitate a more focussed identification of price increase drivers, total prices are further decomposed into three main components. The components Energy, Network and Taxes disaggregate the total price along the value chain. DG Energy further disaggregates taxes into 10 sub-components. These were designed to showcase national characteristics based on harmonized sub-components to the fullest extent possible, while minimizing the number of elements designated as "other". The same components and sub-components are applied to both electricity and natural gas. DG Energy provided extensive guidance to the reporting national authorities to ensure that elements are assigned to components and sub-components in a harmonized manner across all countries. All EU figures are weighted averages of EU Member States only. It is to be noted that the number of countries included in each EU average changes according to energy product and consumption band. For example, there are no consumers in the largest electricity bands.



Data cooperation DG Energy would like to thank for the cooperation of national authorities from 29 countries who provided essential data for the retail prices sections of the report: Country Organization Expert Austria E- Control Esther Steiner Belgium Belgian Ministry of Economic Affairs Marc Vos Bulgaria National Statistical Institute of Bulgaria Iveta Minkova Ivanka Tzvetkova Cyprus Electricity Authority of Cyprus Marios Skordellis Czech Rep. Czech Statistical Office Germany BDEW Bundesverband der Energie- und Wasserwirtschaft e.V. Christian Bantle Denmark Danish Energy Agency Ali A. Zarnaghi Estonia Statistics Estonia Spain Ministerio para la Transición Ecológica Finland Statistics Finland Marianne Rautelin France Ministère de la Transition écologique et solidaire Pascal Levy Croatia Croatian Bureau of Statistics Mirjana Petanjek Željka O. Kelebuh Hungary Hungarian Energy and Public Utility Regulatory Authority Ireland Sustainable Energy Authority of Ireland Mary Holland Martin Howley Italy Italian Regulatory Authority for Energy, Networks and Environment Gabriella Antonel Lithuania Statistics Lithuania Virginija Jasionienė Luxembourg Institut national de la statistique et des études économiques du Grand-Duché de Luxembourg Olivier Thunus Latvia Central Statistical Bureau of Latvia Anna Paturska Malta National Statistics Office of Malta Ronald Tanti Netherlands Statistics Netherlands Eva Witteman Poland Polish Energy Market Agency Krzysztof Dziedzina Portugal Direccao Geral de Energia e Geologia Elisa Oliveira Romania Romanian National Institute of Statistics Michaela Chirculescu Sweden Statistics Sweden Viktor Ahlberg Slovenia Statistical Office of the Republic of Slovenia Marko Pavlič Slovakia Statistical Office of the Slovak Republic Norway Statistics Norway Thomas Aanensen Montenegro Statistical Office of Montenegro Suzana Gojcaj Turkey Turkish Statistical Institute Mehmet Gedik 1.2.1Household Electricity Prices The following section analyses prices paid by household electricity consumers. It examines weighted EU averages and the most representative band in each country. "Most representative" is defined as the consumption band accounting for the largest share in total household consumption, in other words the price for which the most electricity was sold. It is irrespective of the number of consumers in the band. Due to data availability restrictions, weighted EU averages are built uniformly from the consumption band defined by Eurostat terminology as DC, covering annual consumption of 2500 to 5000 kWh. For 2017 a "Most representative" weighted average is also presented. Evolution of household electricity prices Total prices grew at 2% annual rate from 2008 to 2017. In absolute terms the EU price grew from 166 to 200 EUR/MWh in the same period. When considering the most representative band in each country, instead of uniformly considering the consumption band DC, the EU average falls slightly lower, at 196 EUR/MWh. Prices grew faster than inflation, which averaged at 1.2% annually during the same period.

In 2017 the EU price fell for the first time by 3%. This is a significant departure from almost a decade of continuous increases. The decreasing EU average is however to be interpreted with caution. From 2016 to 2017 prices of the most representative bands actually increased in 13 reporting countries. Prior to 2016 the direction of developments on EU level, were mostly the same as the direction of developments in the majority of reporting countries. Since 2016, we can observe more divergent developments. Source: DG ENER in-house data collection Composition of household electricity prices Over time the composition of prices changed significantly. The share of the energy component in the total price decreased by 13 percentage points from 46% to 33% in 2017. In the beginning of the observation period, the energy component was the largest of the three components in all reporting countries. In absolute terms, the energy component decreased on average at an annual rate of 1.5% and reached 67 EUR/MWh in 2017. The contraction of the energy component can be linked to EU energy policies: increased competition resulting from market coupling and the growth of power generation capacity with low operating costs, such as wind and solar power, in addition to existing nuclear and hydro power. On national level 11 Member States reported actually higher energy components in 2017 than in 2016. In these countries wholesale prices either increased or their fall has not translated into a reduction of the energy component. Such results may imply that price competition in a number of retail markets is weak, allowing suppliers to avoid passing on wholesale price reductions to final consumers. The share of the network component remained almost constant at about quarter of the price from 2008 to 2017. In absolute terms the network component grew at the annual rate of 2.5% and reached 54 EUR/MWh in 2017. The share of the taxes component grew by 12 percentage points. It accounted for 28% of the weighted average EU price in 2008 and for 40% in 2017, meaning that it was the largest of the three components. In absolute terms, taxes grew at the annual rate of 6% and reached almost 80 EUR/MWh in 2017. The section "Composition of taxes, levies, fees and charges" analyses in detail which specific policies and fiscal instruments were driving this increase. Household electricity consumption is broken down into 5 bands. The most representative band is defined as the one of these five bands with the highest share in total consumption. In other words, the price for which the most electricity was sold. The 2016 edition of the Energy Prices and Costs series as well as all regular Eurostat press releases uniformly analyse consumption band DC for each country. In many of our reporting countries however only a smaller portion of consumption falls into DC. Household consumption varies highly across countries. It is determined by several factors including household size, climatic conditions (availability of sunlight and consequent lighting needs, heating and cooling needs), GDP (number and size of electric appliances on one hand and the efficiency of these appliance son the other hand), and prevalence of electrification in the transport and heating sectors. In northern countries consumption is typically above DC while in southern countries typically below. To analyse prices that are truly representative, DG Energy introduced the possibility of reporting the price of the most representative band in each country. This feature of the in-house data collection serves the purpose of better catering to needs of Member States. One third of the countries made use of this possibility. It is important to note that if a country did not provide data for the most representative band, it was automatically assumed that DC is such. Typical consumption falls in the following ranges in the reporting countries. Source: DG ENER in-house data collection Drivers of Household Electricity Prices 2017 brought a significant departure from the decade long trend of increasing prices: the EU household electricity price fell for the first time. Between 2008 and 2016 the price was steadily increasing, driven by the combined impact of network charges and taxes – both components steadily growing until 2016. At the same time, smaller decreases in the initially large energy component slightly moderated the growth of the total price. Since 2017 both network charges and taxes have been decreasing on average, in addition to the energy component that has been contracting throughout the whole period. Decreases in all three components led to an overall price reduction.

Source: DG ENER in-house data collection In 2017 Germany reported the highest price of 305 EUR/MWh, overtaking Denmark with a price of 289 EUR/MWh. Denmark reported the highest price from 2008 to 2017. Bulgaria reported the lowest price of 97 EUR/MWh among all EU and non- EU countries. The ratio of the largest to smallest price across the EU decreased by 4% over the last decade, indicating progress towards the completion of the internal energy market. In 2017 the largest price was 3.1 times of the smallest. Denmark and Germany reported the highest tax components of almost 200 and 166 EUR/MWh respectively. In Germany this tax component consists of a number of elements. Support to renewable energy is the largest of those elements (45%), followed by excise duties and concession fees (each 13%). In Denmark the tax component consists mostly of excise duty (61%) and to a much lesser extent of support to renewable energy (10%). The three countries (BE, DE, DK) that reported the largest total prices also reported the highest tax components, indicating a strong correlation between overall price levels and taxation. Belgium reported the largest network component of 105 EUR/MWh which is double that of the EU average (52 EUR/MWh), followed by Sweden with a network component of 85 EUR/MWh. The largest energy components were reported by the islands of Cyprus and Malta. Relatively high energy components result from the characteristics of non- interconnected island systems: limited economies of scale, higher proportion of costs to ensure security of supply and the lack of gas and electricity interconnections. Limited land availability and resulting expensive land occupation fees might also contribute to higher energy components. Italy and Ireland reported the highest energy components among interconnected countries. In Italy, it results mostly from the prominent and increasing role of natural gas in the country's generation mix. There is no nuclear generation in Italy and coal plays a very limited role. Production from renewable sources decreased by 3.3% in 2016, mostly due to a significant drop in hydroelectric production, resulting from reduced availability of water resources. As hydro generation decreased by 3.3 TWh and gas fired generation grew by 7 TWh, the latter's share increased to almost half (47%) of the country's gross electricity production. At the same time, wholesale prices of gas also returned to growth. These developments are reflected in the energy component. In Ireland, much like in the case of isolated island systems, the lack of interconnections is contributing to a higher energy component. The level of interconnection in Ireland is relatively low, at below 5% of all installed capacity or at 6.6% of dispatchable generation. The share of natural gas is also a contributing factor in Ireland: at 50% the highest in Europe. Natural gas is mostly the price setting, marginal plant of the merit order and as such, relatively expensive. Source: DG ENER in-house data collection Box – European Commission efforts to increase interconnection capacities As we saw above, interconnections – or more precisely the lack thereof – is a key contributing factor to high energy components. The socioeconomic value of electricity interconnectors comes from their ability of reducing costs by increasing the efficiency of the electricity systems and in parallel improving security of supply and facilitating the cost effective integration of the growing share of renewables. The framework for the trans-European energy networks (TEN-E) and the Projects of Common Interest (PCIs) are the main tools of the EU energy policy to increase the physical electricity exchange capacity between Member States. The PCIs aim particularly to better connect the peripheral regions such as for example the Iberian Peninsula with the rest of Europe or to integrate rapidly growing share of renewables from remote generation areas such as the Northern Seas. On the current third Union list, there are 110 PCIs in electricity, which benefit from a streamlined permit granting procedures, improved regulatory conditions and under certain conditions are eligible for funding through the Connecting Europe Facility. In addition, the 10% electricity interconnection target by 2020 has provided political momentum to advance key cross-border projects. As a result, seventeen Member States have already reached the target and seven more are on the path to reaching the target by 2020 through the completion of PCIs currently under construction.

In November 2017, the Commission proposed to operationalise the 15% interconnection target by 2030 through a set of additional and more specific thresholds which serve as indicators of the urgency of the action needed. The new thresholds reflect the three headline goals of European energy policy: increasing competitiveness through market integration and better prices, guaranteeing security of supply and achieving the climate targets through increased use of renewable sources. In total, approximately 22 electricity infrastructure PCIs have been completed or will be in operation by the end of 2018. Another 31 important projects are scheduled to be completed around 2020. Composition of taxes, levies, fees and charges In order to better understand how specific policies and fiscal instruments impact taxation levels- which in turn impact total prices- taxes and levies are broken down into 10 sub-components. These sub-components were designed to showcase national characteristics to the fullest extent possible, while minimizing the number of elements designated as "other". DG Energy provided extensive guidance to reporting authorities to ensure that the wide range of tax elements that exist across the countries are assigned to sub-components in a harmonized manner. It is important to note that we consider only policy support costs that directly impact retail prices. Also, not every tax sub-component exists in each Member State. The following graph displays EU averages. Source: DG ENER in-house data collection Source: DG ENER in-house data collection



Value Added Tax VAT is imposed on household electricity prices in all reporting countries. The EU VAT Directive explicitly allows Member States to apply reduced rates to electricity. As a result, VAT rates range from 6% in the United Kingdom to 27% in Hungary. As the largest sub-component, VAT accounted for 37% of the tax component and 17% of the total price. VAT is an ad valorem tax, its absolute value is based on the value of all other elements in the price. Even if VAT rates remain unchanged but other elements increase, the absolute amount of VAT increases. The average amount of VAT paid by households across the EU was 29 EUR/MWh in 2017, an increase of 31% since 2008. Environmental taxes incl. excise duty (Non- Earmarked Taxes) The sub-component includes any manifestation of excise duty, environmental, greenhouse gas emission, transmission and distribution taxes. Their common characteristic is that normally revenues from these taxes are not earmarked to energy, climate or environment related policies. In other words, revenues flow into the central state budget regardless of the name of the tax. Minimum excise duty levels on energy products are harmonised on the EU level and are defined by the Council Directive 2003/96/EC22. The sub-component excludes VAT.

Non- earmarked taxes grew from 11 to 16 EUR/MWh by 2017. They made up 21% of the taxes component and 8% of the total price, representing the third largest sub-component after VAT and RES&CHP. This reflects an annual growth rate of 1%, significantly lower than for industrial consumers. Renewable Energy and Combined Heat and Power This sub-component includes any support to renewable energy (RES) and combined heat and power generation (CHP). Explicit RES & CHP support costs are presented for 25 EU Member States and Montenegro. In Finland and Malta the renewable energy support scheme is not financed through an explicit levy on consumer bills but from the central state budget. France has been following the same example since 2016.In Hungary household electricity consumers, unlike their industrial counterparts, are exempted from the RES levy (a value of 0 is reported). Therefore in these 4 countries the direct cost to households is zero. It is important to note that consumers still pay for the support of renewable energy, albeit in an implicit way. Data for the United Kingdom is estimated and includes support to energy efficiency. In several countries renewable energy is supported also from sources additional to taxes on consumer bills. The average EU household paid 24 EUR/MWh for RES&CHP support in 2017. This figure equals 30% of the taxes component and 12% of the total EU price. The sub-component experienced a fast increase from 2008 to 2015 as it grew annually by 15%. An important departure from this trend is to be observed in 2016 when the cost of RES&CHP support on EU level started to fall. A 2% decrease is remarkable especially as the share of renewable energy in the EU's energy mix grew by 16% from 2015 to 2016. These developments mean not only that the average EU household pays less but also that the lower cost enables more renewable energy. France recently overhauled its energy taxation. Until 31 December 2015 a Public Service Obligation was levied on electricity (CSPE) and natural gas (CSPG) bills. The PSO consisted of three main elements: support to renewable energy, support to vulnerable consumers and national tariff equalization. All three PSO elements are accounted for separately in our report and the latter two are classified as social levies. The RES support levy ranged from 2 EUR/MWh for large industrial consumers to 11 EUR/MWh for households. The RES element of the PSO on natural gas bills specifically supported bio-methane. At the same time, a separate consumption tax was applied to both electricity (TICFE) and gas (TICGN). Rates of this tax on electricity rates ranged from 1.5 EUR/MWh for large industrial consumers to 12 EUR/MWh for households. From 1 January 2016 the explicit RES levy, as well as both other PSO elements were discontinued. Vulnerable consumers and national tariff equalization are financed through the general budget. The dedicated budget line "Public service of energy" also includes smaller elements of the discontinued PSO such as, support to combined heat and power and CDC (Caisse des dépôts et consignation, the French National Promotional Bank) management fees. Until 2017 RES was supported through a transitory system. In 2017 the electricity consumption tax (TICFE) increased to 9 EUR/MWh for large industrial consumers and to 31 EUR/MWh for households. The natural gas consumption tax increased to about 5 EUR/MWh for households and median industrial consumers, while large industrial consumers remained exempted. Revenues from these taxes feed into the general budget and do not support any specific policies. From 2017 onwards, renewable energy is supported through the revenues of two fossil fuel taxes. TICPE, which is applied to the end use of petroleum products and TICC, which is applied to coal consumption, including coal used to generate electricity. Consequently, the financing of renewable energy is no longer directly connected to electricity or natural gas bills. This is reflected in our data: From 2017 onwards the RES sub-component is zero. CSPE: Contribution au service public de l'électricité. Discontinued PSO. CSPG: Contribution au service public du gaz. Discontinued PSO. TICFE: Taxe intérieure sur la consommation finale d’électricité. Current consumption tax on electricity. TICGN: Taxe intérieure sur la consommation de gaz naturel. Current consumption tax on gas. TICPE: Taxe Intérieure sur les Produits Énergétiques. Fossil fuel tax on petroleum products.

TICC: Taxe Intérieure sur la Consommation de Charbon. Fossil fuel tax on coal.



Social Charges Social charges include support to vulnerable consumers, social tariffs, last resort supplier, national tariff equalization, pension funds and support to sectorial employment policies. They were the second most important energy policy relevant charges across the EU in terms of the cost to consumers as well as in terms of the number of countries applying them . Still, the impact of social charges remained limited. They made up 3% of the taxes component and 0.8% of the total price. They grew at the annual rate of 3% and reached 2.15 EUR/MWh in 2017. More telling is the number of countries that applied explicit social charges: it grew from 6 in 2008 to 9 in 2017. In Bulgaria and Portugal in certain years between 2015 and 2017 the sub-component was negative as rebates were effective, which decreased total prices in these countries. The United Kingdom's Warm Home Discount is a redistributive levy. All households pay towards this levy via their gas and electricity bills. All the revenues collected are recycled back as £140 annual rebates on the electricity bills of eligible low-income and vulnerable households. As such, the net effect of the policy on average dual fuel (gas and electricity) bills is £0. The underlying report however reflects the gross cost, as the rebate applies only to smaller a subset of households. Security of Supply Security of supply related levies were imposed by 9 Member States in 2017, up from 6 in 2008. The impact of security of supply related charges remained limited, at below 1% of the EU price. Concession Fees Concession fees, in most cases for the occupation of public land, accounted for 2% of the EU price and 4% of the taxes component. Such fees, averaging at 3.7 EUR/MWh, were imposed by 5 Member States (AT, BE, DE, PL, PT) on household electricity prices. The presence of concession fees in the EU average is due to a higher fee of 20.5 EUR/MWh in Germany. Other energy policy relevant charges The explicit impact of other energy policy relevant charges remained limited. Cost elements imposed to support energy efficiency, the nuclear sector or the national regulatory agency, each made up less than 1% of the average EU price. Charges for the financing of the National Regulatory Agency or a market operator are levied in 6 Member States (BE, CZ, PT, SK, SI, ES). Nuclear sector levies are imposed by 4 Member States (BE, IT, SK, ES). The nuclear sub-component includes only levies that directly impact retail prices by supporting the sector. Taxes paid by generators of nuclear energy - imposed on the wholesale level - are therefore not considered. Support to energy efficiency measures is explicitly levied in 4 Member States (BE, IT, SI, UK ). The residual sub-component "other" includes a limited number of elements such as, deficit annuities in Spain, public television fee in Turkey or R&D in Denmark. Source: DG ENER in-house data collection

1.2.2 Industrial Electricity Prices The following section analyses prices paid by non- household electricity consumers on EU and national levels. It examines prices of the Eurostat band ID, covering annual consumption of 2000 to 20 000 MWh. This band is often considered as the best indicator of economy wide non- household prices. It can be considered industrial as far as it might include prices paid by other non-household sectors, such as services, agriculture, fisheries and transport. Box - The role of households and industry in our energy consumption Households account for about 22% of our energy consumption. This has not changed significantly over the last decade as the share of household consumption fluctuates close to this figure. Improvements in energy efficient appliances however slowly dampen these fluctuations that no longer reach as high as around 2010. Industries accounted for 25% of the EU’s energy consumption in 2016, reflecting a 3 percentage point decrease since 2008, the beginning of the economic and financial crisis that dampened industrial production and thus energy consumption.



Evolution of Industrial Electricity Prices Total prices grew at 1% annual rate from 2008 to 2017. In absolute terms the EU price grew from 94 to 103 EUR/MWh. This growth was slightly higher than inflation for industrial prices, which averaged at 0.5% annually during the same period. The evolution of the EU industrial (ID) price conceals two distinct periods. From 2008 to 2014 it steadily grew by 2% annually. Since 2015 it has been decreasing by 1% annually These EU figures are made up of relatively homogenous national developments, as ID prices grew only in one third of the reporting countries from 2016 to 2017. Source: DG ENER in-house data collection Composition of Industrial Electricity Prices Over time, the composition of the EU industrial price changed even more significantly than the composition of the household price. The share of the energy component in the total price decreased by 28 percentage points from 68% to 40% in 2017. Still, unlike in the case of households, the energy component of industrial electricity prices remained the largest of the three components by a small margin. Its share in the total price was 2 p.p. higher than the share of taxes. In absolute terms, the energy component decreased at the annual rate of 5% and reached 41 EUR/MWh in 2017. The contraction of the energy component reflects falling wholesale prices which make up most of the component and can be linked to EU energy policies: increased competition resulting from market coupling and the growth of power generation capacity with low operating costs (such as wind and solar power, in addition to existing nuclear and hydro power). On country level, 9 countries reported actually higher energy components in 2017 than in 2016. In these countries wholesale prices either increased or their fall has not translated into a reduction of the energy component. Such results may imply that price competition in a number of retail markets is weak, allowing suppliers to avoid passing on wholesale price reductions to final consumers. The share of the network component increased by 5p.p. from 17% to 22% in 2017. In absolute terms the network component grew at the annual rate of 4% and reached 22 EUR/MWh.

The share of the taxes component grew by 23 percentage points, taking over most part of the falling share of the energy component. It accounted for 15% of the EU price in 2008 and for 38% in 2017. In absolute terms, taxes grew at the annual rate of 12% and reached 39 EUR/MWh in 2017. In 2017 Germany reported the highest medium industrial price (142 EUR/MWh), followed by Italy (133 EUR/MWh) and Cyprus. Germany and Italy reported also the highest taxes across the EU, while in Cyprus a high energy component results in overall higher prices, In Germany RES support costs made up 80% of all taxes while excise duties accounted for an additional 18%. The composition of Italian taxes is similar to those of Germany, with RES accounting for four-fifths of all taxes. Sweden reported the lowest price of 55 EUR/MWh among all EU and non- EU countries. For medium industrial consumers, Latvia, Lithuania, Germany and Slovakia reported the highest network components (in descending order) ranging from 36 to 31 EUR/MWh. Belgium, where network charges for household consumers are double that of the EU average, reported the 6th smallest network component for industrial consumers (18 EUR/MWh). The largest energy components were reported by the islands of Cyprus and Malta, followed by Ireland and the United Kingdom. Source: DG ENER in-house data collection Source: DG ENER in-house data collection The previous graphs present medium consumption figures in each country. Several countries grant tax reductions to energy intensive industries. As energy intensity is not based on consumption volume, but on the share of energy related costs in total production, this median band can include enterprises that benefit from such reduced tax rates. Drivers of Industrial Electricity Prices The EU industrial price grew continuously from 2008 to 2015. This increase was driven by the combined impact of network charges and taxes, as both components were steadily increasing. At the same time, smaller decreases in the initially large energy component moderated the growth of total prices. A departure from this trend is to be observed in 2015 when the total EU price fell for the first time. This can be attributed entirely to the accelerated reduction of the energy component as the other two components kept increasing. From 2016 to 2017 the average industrial price further decreased from 106 to 103 EUR/MWh. It is to be underlined that EU averages conceal divergent national developments. Total prices increased in one third of the reporting countries from 2016 to 2017. The energy component actually increased in 9 countries. On the national level network charges increased in 14 countries and taxes grew in 16 of the 28 EU Member States . Composition of taxes, levies, fees and charges The following section considers only policy support costs that directly impact retail prices.

Source: DG ENER in-house data collection Source: DG ENER in-house data collection Value Added Tax VAT is recoverable for most industrial consumers in all reporting countries. Therefore this report analyses industrial prices excluding VAT. Other recoverable taxes are also excluded prom the price we report. Environmental Taxes incl. excise duty (non- earmarked taxes) Non- earmarked taxes grew from 6 EUR/MWh to 11 EUR/MWh in 2017. This reflects an annual growth rate of 3%, the third highest among the 10 different categories of taxes. Non- earmarked taxes made up 25% of the taxes component and 9% of the total price, representing the second largest sub-component after RES&CHP. Renewable energy and Combined Heat and Power

This sub-component includes any support to renewable energy and combined heat and power generation. Explicit RES & CHP support costs are presented for 25 EU countries and Montenegro. In Finland and Malta the renewable energy support scheme is not financed from a levy on electricity consumption but from the central state budget. France has been following the same example since 2016. Therefore in these 3 countries the explicit cost of supporting renewable energy is zero for industrial consumers. It is important to note that consumers still pay for the support of renewable energy, albeit indirectly. In Hungary industrial consumers are subject to a RES levy while households are exempted. Data for the United Kingdom is estimated and includes support to energy efficiency. In several countries renewable energy is supported also from sources in addition to levies on electricity consumption. RES & CHP accounted for 25 EUR/MWh in 2017 (up from 23.2 EUR/MWh in 201). This figure equals 64% of the taxes component and 24% of the total EU price. These relative shares are almost twice of the household figures. This is due to the fact that VAT, which accounts for a high share of household taxes, is recoverable for industrial consumers.



Social charges Social charges include support to vulnerable consumers, social tariffs, last resort supplier, national tariff equalization, pension funds and support to sectorial employment policies. The impact of social charges on industrial prices diminished over time, as they decreased from 0.9 EUR/MWh to 0.6 EUR/MWH in 2017. They made up 2% of the taxes component and 0.6% of the total price (slightly less than for household consumers) in 2017. Security of supply Security of supply related levies were imposed by 10 countries in 2017, up from 6 in 2008. The impact of security of supply related charges remained limited, at below 1% of the EU price. Concession fees Concession fees for industrial consumers were much smaller than for their household counterparts. As a result, the impact of such fees remained insignificant (below half a percent of the total price). Other energy policy relevant charges The explicit impact of other energy policy relevant charges also remained limited. Cost elements imposed to support energy efficiency, the nuclear sector and national regulatory agency made up less than 1% of the average EU price. Charges for the financing of the National Regulatory Agency or a market operator are levied in 6 Member States (BE, ME, PT, SK, SI, ES). Nuclear sector levies are imposed by 4 Member States (BE, IT, SK, ES). The nuclear sub-component includes only levies that directly impact retail prices by supporting the sector. Taxes paid by generators of nuclear energy - imposed on the wholesale level - are therefore not included. Support to energy efficiency measures is explicitly levied in 4 Member States (BE, IT, SI, UK ). The residual sub-component "other" includes a limited number of elements such as, deficit annuities in Spain, public television fee in Turkey or R&D in Denmark.







Source: DG ENER in-house data collection 1.2.3Small vs. Large Industrial Electricity Prices The following section compares prices paid by two types of non- household consumers: consumers with small volume of annual consumption (20 to 500 MWh defined as band IB) and consumers with large volume of annual consumption (70 000 to 150 000 MWh defined as IF). Band IB typically includes small enterprises and services. Band IF includes large industrial consumers such as the chemicals, metals and construction materials industries. Band IF covers many energy intensive industries, however not all of them. Energy intensity is not defined based on consumption volume but on the relative importance of energy costs in total production costs. As a result, an enterprise that consumes small amount of electricity can still be energy intensive. The opposite holds as well. There are enterprises consuming large amounts of electricity that are not considered energy intensive. An example is the automobile industry. Band IF is therefore a mixed band that covers prices paid by energy intensive and non-energy intensive industries. This is reflected in our data: large consumers pay lower taxes due to partial exemptions from levies according to the Energy and Environment State Aid Guidelines (EEAG). These partial exemptions apply to some, not all IF consumers. Data for IB was reported by 26 EU member States (except the United Kingdom and Greece), Montenegro, Norway and Turkey. Data for the UK and Greece was estimated by DG Energy. IF data was reported by 25 EU Member States and Turkey. Data for the UK and Greece was also estimated by DG Energy for this band. In Luxembourg IF data is confidential (there are less than three consumers in the band). Evolution of Small vs. Large Industrial Electricity Prices Total prices grew at annual rate of 1.8% for IB consumers. IF prices experienced a different evolution as they fell slowly, by 0.3% a year. In absolute terms the IB price grew from 121 to 143 EUR/MWh and the IF price fell from 83 to 80 EUR/MWh. Inflation averaged at annual 0.5% during the same period. The above figures cover the period 2008 to 2017, by 2015 year-on-year prices were falling for both consumer types. The EU averages conceal relatively homogenous evolutions across the reporting countries as IB and IF prices increased in 9 and 11 countries respectively from 2016 to 2017. In 2017 Germany reported the highest (192 EUR/MWh) IB price while Sweden reported the smallest (78 EUR/MWh) across the EU. Both Norway and Turkey reported prices lower than any EU Member State. Cyprus reported the highest price for large industrial consumers (117 EUR/MWh) followed by Germany (114 EUR/MWh) and the United Kingdom (113 EUR/MWh). Also Sweden reported the smallest price for IF (40 EUR/MWh). Over the last decade the ratio of the largest to smallest price evolved differently for the two consumer types. For IB consumers the ratio decreased by 13% and the largest price was 2.7 times of the smallest. For IF consumers the ratio increased by 18% to 4.7. Source: DG ENER in-house data collection Composition of Small vs. Large Industrial Electricity Prices Albeit the two bands reflect prices for quite different consumer types, the composition of prices evolved in a notably similar fashion. For both consumer types the energy component lost about 25 p.p. of its share in the total price. Also for both consumer types taxes took over most of the decreasing share of the energy component, as they experienced around 20 p.p. increase. A smaller increase in the share of network charges accounted for the remaining changes.

IB IF IB IF 2008 2017 2008 2017 Change (p.p., 2008-2017) Energy 62% 38% 74% 49% -24% -25% Network 25% 28% 13% 17% 3% 4% Taxes 13% 34% 13% 34% 20% 21% Source: DG ENER in-house data collection In absolute terms, the energy component decreased at an annual rate of 3.5-5% for the two consumer types. By 2017 it reached 54 and 39 EUR/MWh for IB and IF consumers respectively. The contraction of the energy component reflects falling wholesale prices, which make up most of the component In absolute terms the network component grew at the annual rate of 2.7% (IB) and 3.3% (IF) for the two consumer types. For IB consumers the network component grew from 30 to 40 EUR/MWh from 208 to 2017. The IF network component grew from 10 to 13 EUR/MWh during the same period. In 2008 taxes made up 34% of the total price for both consumer types. In absolute terms they grew from 16 to 48 EUR/MWh for IB consumers and from 10 to 27 EUR/MWh for IF consumers. Taxes grew 2 p.p. faster for large consumers (by 13% annually). In 2017 the total IB price was 143 EUR/MWh, 62 EUR higher than the IF price. The reason for this difference lies in all three components. Some IF consumers are auto producers, who generate their own electricity or have over the counter, long term power purchase agreements which are reflected by lower energy components in our data (54 vs. 39 EUR/MWh). IF consumers are often connected directly to the high voltage transmission grid and therefore do not need to pay for using the distribution grid. This reduces the network component in our data set (40 vs. 13 EUR/MWh). Lastly, for IB cons