Why Europe’s Highly Regulated Power Market Is So Bad for Growth

Despite an endless chain of monetary and fiscal stimuli, the eurozone consistently disappoints in growth and job creation. One of the reasons is demographics. No monetary and public spending stimulus can offset the impact on consumption and economic growth of an aging population, as Japan can also confirm.

However, there is an especially important factor that tends to be overlooked: the lack of competitiveness of the eurozone industry due to rising and noncompetitive power prices.

 Residential electricity prices in the European Union between 2010 and 2014 averaged nearly $240 per megawatt hour (MWh), whereas the US averaged nearly $120/MWh, or less than half of EU prices. The EU average gasoline and gasoil prices were also twice as high compared with the United States.

This trend has not improved. In 2020, the average residential consumer’s electricity price in Europe showed an increase of 13 percent over the average price ten years before.

Renewable subsidies play an important role. In Germany, household power prices have risen dramatically since 2006. Household electricity prices have risen by 57 percent between 2006 and 2019, while the country invested more than €150 billion in subsidies for renewables. The price of energy only accounts for 23 percent of the average household bill, while renewable premiums account for 21 percent and the cost of the networks for 24 percent. Today, Germany depends for almost 24 percent of its energy mix on coal and 12 percent on natural gas.

 
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Πηγή: mises.org