Pricing of Energy Overall Scope Energy sources & carriers used - PowerPoint PPT Presentation

Pricing of Energy

Overall Scope • Energy sources & carriers used by end-consumers o Oil products • Gasoline, diesel, heating oil o Natural gas o Electricity • Final price paid by end-consumers o Energy component o Other: transmission, distribution, levies, taxes and VAT 2

• Outline o General principles of pricing energy • Primary fuels (oil, natural gas) • Electricity (wholesale market) o Decomposition of energy retail prices (Belgium) o International positioning o Final reflections 3

General principles of pricing of energy • Primary fuels o Supply-demand fundamentals • Supply • Demand • Cost of extraction • Economic growth • Transport costs • Availability of • Limited resource stocks substitutes • Cartels • Policy • Policy • Etc. • Etc. • Expectations on both sides • Prospects on new - undiscovered – reserves • Political unrest • Speculation 4

General principles of pricing of energy Oil • Can be transported relatively easily o Pipelines, tankers • Global market • Quality (e.g., gravity ‘API’ and sulfur content) and costs of delivery affect price • West Texas Intermediate (WTI) and Brent 5

General principles of pricing of energy Natural Gas • Transport through pipelines, liquefied to be transported by ship (LNG) • Long term contracts o When dedicated infrastructure still being developed o Indexed on oil price o To guarantee pay-back • Hub-based prices o E.g., NBP, Zeebrugge, Henry hub 6

General principles of pricing of energy Natural Gas • Significant differences between regions globally US < EU < Asia o Dependent on market structure and transport costs o • Good convergence among European hub’s Gas-to-gas competition o Liquid markets o Good physical interconnections o • Also renegotiation of long-term contracts More to hub-based o Availability of LNG infrastructure o 7

General principles of pricing of energy Natural Gas Source: ACER, 2013 8

General principles of pricing of energy Natural Gas Source: CREG, 2014 9

General principles of pricing of energy Electricity • Wholesale markets o Price set by supply – demand intersection • Instantaneous balance  continuously changing price o Peak, off-peak, specific profiles • National character • Interconnections and market coupling 10

General principles of pricing of energy Electricity Source: ACER, 2013 11

General principles of pricing of energy Electricity Source: ACER, 2013 12

General principles of pricing of energy Electricity Source: CREG, 2014 13

General principles of pricing of energy • Outlook o Global politics and economic developments o Reserves? • Unconventional hydrocarbons • Impact on prices for fossil fuels worldwide - Coal, LNG o International climate agreement? 14

Decomposition of energy retail prices • Oil products • Natural gas • Electricity 15

Oil 16

Decomposition of energy retail prices Oil • Program agreement between the Belgian government and the Belgian Petroleum Federation on maximum prices for oil products (end use) • Most common fuels: gasoline, diesel, LPG and heating oil • Components o Price ex-refinery o Maximum gross margin on distribution o Public levies o Taxes and VAT 17

Decomposition of energy retail prices Oil • Components o Price ex-refinery • Energy component • Linked to price quotes of finished products on Rotterdam market • Influenced by international price for crude, exchange rate €/$, the supply/demand for finished products (e.g., affected by refinery capacity) o Maximum gross margin on distribution • Chain from refinery to end-user 18

Decomposition of energy retail prices Oil • Components (cntd) o Public levies • APERTA levy • Contribution for agency for petrol  maintain strategic oil reserves • BOFAS levy • Fund for soil remediation o Taxes and VAT • Excise tax [€/l] • 21% VAT on sum of all the above (including excise tax) 19

Decomposition of energy retail prices Oil • Composition Source: BFP, 2014 20

Decomposition of energy retail prices Oil Source: BFP, 2014 22

Natural Gas 23

Decomposition of energy retail prices Natural Gas • Consider following consumers (following CREG report) o Household (“T2”) • Natural gas 23,260 kWh/y o Professional consumers (“T4”) • Natural gas 2,300,000 kWh/y • Evolution of price from January 2007 till May 2013 24

Decomposition of energy retail prices Natural Gas • Evolution of final price – domestic consumer Source: CREG, 2013 25

Decomposition of energy retail prices Natural Gas • Composition of final price o Energy price o Transmission o Distribution o Public levies o Energy taxes and VAT 27

Decomposition of energy retail prices Natural Gas • Composition of final price – domestic consumer Source: CREG, 2013 28

Decomposition of energy retail prices Natural Gas • Composition of final price – domestic consumer Source: CREG, 2013 29

Decomposition of energy retail prices Natural Gas • Energy component Component based on index parameters o • Oil-indexation phasing out • Indexation formula changes not frequently Prize ‘freeze’ between April 2012 – December 2012 o As from 2013, changes (indexation) in variable pricing o contracts require approval regulator CREG (ex-post) +9.74 €/MWh (+229.86 €/y; +36.29%) o • Due to evolution index parameters 32

Decomposition of energy retail prices Natural Gas • Transmission tariff o Fluxys transmission tariff o Uniform (T2 and T4) o Rather stable Source: CREG, 2013 34

Decomposition of energy retail prices Natural Gas • Distribution tariff o Covering distribution costs o Some new tariffication elements o Price evolution: • Flanders +3.75 €/MWh (+37.71%) • Walloon region: +5.34 €/MWh (+32.42%) • Brussels: +2.56 €/MWh (+23.34%) 35

Decomposition of energy retail prices Natural Gas • Public levies o Minor component o Strongly dependent on region and DSO • Energy tax and VAT o Energy tax: 0.99 €/MWh o VAT of 21% on sum of all components (incl. tax) 36

Electricity 37

Decomposition of energy retail prices Electricity • Consider following consumers (following CREG report) o Household (“Dc”) • Electricity 3,500 kWh/y o Professional consumers • Electricity 160,000 kWh/y, low voltage (“Ic”) • Electricity 160,000 kWh/y, medium voltage (“Ic1”) • Evolution of price from January 2007 till May 2013 38

Decomposition of energy retail prices Electricity • Evolution of final price – domestic consumer Source: CREG, 2013 39

Decomposition of energy retail prices Electricity • Composition of final price o Energy price o Transmission o Distribution o Public levies o Contribution RES and CHP o Energy taxes and VAT 42

Decomposition of energy retail prices Electricity • Composition of final price – domestic consumer Source: CREG, 2013 43

Decomposition of energy retail prices Electricity • Composition of final price – domestic consumer Source: CREG, 2013 44

Decomposition of energy retail prices Electricity • Energy component Component based on index parameters o • Indexation formula changes not frequently Prize ‘freeze’ between April 2012 – December 2012 o As from 2013, changes (indexation) in variable pricing o contracts require approval regulator CREG (ex-post) Dc: Flanders -1.53 €/MWh (-2.83%) o Dc: Walloon region & Brussels: +2.72 €/MWh (+3.63%) o • Due to evolution index parameters 47

Decomposition of energy retail prices Electricity • Transmission tariff o Elia’s transmission grid tariff • Corrected with loss-percentage of DSO o Minor component o Same for Dc and Ic; Ic1 different 49

Decomposition of energy retail prices Electricity • Distribution tariff o Introduction of multi-year tariff o Public service • Flanders: “Free electricity”, public lighting, green certificates and actions for rational energy use o Consumers on MV face lower tariff • Cascade principle  do not bear costs of infrastructure downstream o Price evolution: Overall +71.7% • Flanders +41.64 €/MWh (+99.96%) • Walloon region: +13.80 €/MWh (+32.42%) • Brussels: +19.28 €/MWh (+47.81%) 50

Decomposition of energy retail prices Electricity • Evolution and composition distribution tariff Source: CREG, 2013 51

Decomposition of energy retail prices Electricity • Public levies o Federal contribution (2.98 €/MWh) • E.g., denuclearization of BP1 and BP2 Mol-Dessel o Connection off-shore wind (0.14 €/MWh) o Green certificates (2.2 €/MWh) • Off-shore wind o Costs +99.57% 52

Decomposition of energy retail prices Electricity • Contribution RES and CHP o Obligations supplier o Costs +119.67% Source: CREG, 2013 53

Decomposition of energy retail prices Electricity • Energy tax and VAT o Energy tax: 1.9 €/MWh o VAT on sum of all components (including tax) • 21% till March 2014 • 6% as of April 2014 54

International positioning • Natural gas • Electricity 55

International positioning Natural Gas • Comparison neighboring countries – domestic consumer Source: CREG, 2014 56