Economics (AS & A Level) · Feb / March 2024 · Paper 42 · Question 1

French electricity prices In 2022 the French government ordered a large electricity company, partly owned by the state, to sell more electricity at lower prices than its rivals. The company said this would have a negative impact on its profits and result in a decrease in the value of the company’s shares owned by the private sector. Competitors in electricity supply in France are allowed to buy power from this company at a 40% discount due to its monopoly position. The government instructed the company to increase the amount they must sell to competitors at the discounted market price. The government also cut taxes on electricity to try to keep the increase in prices for households and small businesses to 4%, rather than the expected 35%, without any government action. As well as producing electricity in France, the company owns nuclear power stations and gas-fired power stations in the UK and supplies 11% of the UK’s electricity. A global shortage of natural gas supplies caused a crisis, pushing up electricity prices. Much electricity is produced in gas-fired power plants. The situation was worsened by faults in the electricity-producing nuclear power plants in both the UK and France. In January 2022 alone, a further five nuclear power plants in France were forced to close. That meant that 18 of the 56 plants had closed; a worrying proportion for a company that derives 70% of its electricity output from nuclear power. The plants were old. Corrosion caused safety fears and the closures restricted supplies. Previously, the nuclear power plants put France in a strong self-sufficient position of which other European countries can only dream. The UK, for example, has to import expensive gas to produce electricity, where the price rise was expected to be not 35%, as in France, but 56%. However, the cost to the French government of reducing the electricity price affected its ability to finance renewable energy projects as well as build a new generation of nuclear reactors. The government claimed the benefit was that they rescued millions of households from the prospect of excessive rises in electricity prices. Source: The Daily Telegraph, 15 January 2022

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