France to cap electricity, gas prices increases at 15 percent

France will cap increases in electricity and gas prices for households at 15 percent early next year, extending price controls introduced after Russia's invasion of Ukraine.

Prime Minister Elisabeth Borne announced Wednesday that caps will apply to domestic consumers and small companies, and that energy cheques of 100 to 200 euros will also be given to some 12 million lower-income households to help with winter heating bills.

"We are determined, just like at the beginning of the crises that we face, to act, adapt and protect the French people and our economy," Borne told a press conference.

"Very early on, we took strong measures to protect the French public,” she said, referring to caps introduced earlier this year that limited an increase in regulated power prices to four percent and froze residential gas prices at October 2021 levels.

“But everyone knows, and we have to say it transparently: These measures come at a cost to our public finances," said Borne, even as the caps have contributed to France's lower inflation rate than in neighbouring European countries.

Avoiding a 120% increase

The new gas cap will take effect in January, while the electricity cap will follow a month later.

Without the limits, prices would increase 120 percent, according to the government, which forecasts that households with gas heating will, on average, pay 25 euros more each month instead of an extra 200 euros without a price-cap, in 2023, and electricity will go up 20 euros a month, compared to 180 euros without the limits.

The measures are expected to cost 16 billion euros, Finance Minister Bruno Le Maire said at the press conference, with 11 billion euros going toward gas and five billion euros for electricity.

Borne said that "only restraint [of energy consumption] and European solidarity will allow us to avoid cuts and rationing in the worst-case scenarios, like an especially cold winter combined with supply problems."

But she added that "in the most likely scenarios, if everyone acts responsibly... there will be no cuts."

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No blackouts

Because of its dependence on nuclear energy, France is less exposed to a cut in Russian gas supplies, but more than half of the country's reactors are offline, adding to the energy crunch across Europe.

French electricity grid operator RTE said earlier Wednesday that there is no risk of a total blackout in the country this winter, though some power cuts could occur during peaks of demand.

In its forecast for the 2022-2023 winter, RTE said the most extreme scenarios would involve several events at once, including a nuclear supply shortage, a gas shortage in Europe, and extreme weather.

But even in the worst-case scenario, the energy crunch would lead to consumption limits, not to a total blackout, the operator said.

Price hikes not justified

Lowering national electricity consumption by one to five percent in most cases and up to 15 percent in the face of extreme gas shortages and very cold weather could avert a power crunch.

RTE usually starts winter monitoring in January, but this year it will be on alert starting in November, or earlier if needed.

The operator also said that "abnormally high" French electricity prices were not justified, even as European energy future and spot prices soared over the summer, adding that current prices were detached from their technical fundamentals.

(with wires)