Increased energy cost has been at the centre of interest since September 2021 when it led to a record high inflation rate across Europe (see previous note). There is a plethora of reasons behind this phenomenon: economic recovery after the lockdown and the consequent increase in production, weather conditions that increased demand, surging prices of natural gas (as a production factor for electricity) as well as Europe’s delay in filling its gas storage units. The combination of these factors led to a ‘perfect storm’ for Europe.
Despite surging energy prices being an aggregate shock, not all European countries are affected at the same degree. Different mix of sources to generate electricity (coal, natural gas, renewable sources), different distribution costs and different levels of energy and VAT taxes lead to different residential prices of electricity and gas (as a final good) faced by the European households.
Energy regulatory authorities of Austria and Hungary monitor and publish monthly data on residential prices paid in major capital cities of Europe. According to the latest report, Athens exhibits the highest monthly increase in electricity and gas prices (22% and 16% respectively) in December 2021*. In nominal prices, Athens is among the most expensive capitals regarding the residential electricity and gas cost. The nominal price for residential electricity amounts to 0.315 euro and 0.118 euro for gas (6th and 7th highest nominal price per kWh). However, if prices are adjusted to purchasing power standards (PPS) in each country, then Athenian households pay the 2nd highest price across Europe for electricity and the 6th highest for gas (see graph). As a result, Greek consumers – given their purchasing power – pay a significantly higher price for residential electricity and gas compared to the European average.
On a previous note we described all national policies in place to tackle high energy costs. According to the latest data, Greek consumers are heavily affected by increased residential electricity and gas prices rendering the continuation of those policies necessary. Unfortunately at this point, there is no time and space to shield Europe against volatile global energy prices and geopolitics. However, this winter’s bitter experience should shape European policies that aim to prevent the problem rather than mitigating its consequences.
*Data refer to December 1st, 2021.