The price of electricity has risen astronomically in Europe over the last two years: by four times over the previous year and ten times over the last two years. The European Union has claimed that this rise in prices is due to the increase in the price of gas in the international market and Russia not supplying enough gas. This raises the critical question: why should—for example—the German electricity price rise four times when natural gas contributes only one-seventh of its electricity production? Why does the United Kingdom, which produces half the natural gas it consumes, also see a steep rise in the price of electricity? All this talk of Russia masks the reality that the electricity generators are making astronomical windfall profits. The poorer consumers, already pushed to the wall by the pandemic, face a cruel dilemma. As electricity bills may consume 20-30% of their household budget during winter, should they buy food or keep their houses warm?
This steep rise in electricity prices is the other side of the story of the so-called market reforms in the electricity sector over the last 30 years. The cost of electricity is pegged to the costliest supply to the grid in the daily and hourly auctions. Currently, this is natural gas, which is why electricity prices are rising sharply even if it is not the primary source of electricity supply to the grid. This is market fundamentalism, what the neo-classical economists call marginal utility theory. For those interested in its history, this was Augusto Pinochet’s electricity sector reform in Chile. Milton Freedman, assisted by his Chicago Boys, was the guru of Pinochet’s reform. That electricity price
— source newsclick.in | Prabir Purkayastha | 09 Sep 2022