These are the real causes of rising energy prices in the Netherlands
Due to the coronavirus crisis, energy prices were extremely low in 2020. Since then, the economy has picked up again, and partly as a result energy prices started to rise sharply. Quite a few price peaks are being recorded, and for gas in particular energy prices are rising sharply. We explain why this is, what causes lie at the root of it and what you should do now.
01Causes of the high energy rates
Just like the price of other commodities, the energy price also depends on the market of supply and demand. If demand is high and supply is low, energy prices will be high. In the opposite case, energy prices are low. In 2021, demand for energy has risen sharply, while there are problems on the supply side. As a result, energy rates are currently very high. Various causes lie at the root of this situation.
The economy is reviving
The coronavirus crisis has had far-reaching consequences in economic terms. Factories were closed worldwide. Production was limited and demand for energy decreased. At the same time, companies also postponed their purchases and warehouses remained empty. Consumers temporarily bought fewer products, but are now catching up.
Once the lockdowns ended, the orders came flooding in again. Consumers started buying again and companies wanted to restock their warehouses. Due to the sharply increased demand, however, shortages arose and the prices of raw materials and shipping containers rose. Supply is still very uncertain and that is why companies are ordering whatever they can order, even if their warehouses are already well stocked. As a result, companies are now producing at full capacity and need a lot of energy. An increased demand for energy always leads to rising energy prices.
Cold winter and empty gas reservoirs
At the beginning of May, the temperature in Europe was relatively low, so a lot of gas was used. When temperatures started to climb again, coal prices happened to rise. As a result, demand for natural gas has remained high. The consequence is that the natural gas reservoirs are already relatively empty for this year. The fact that natural gas extraction in the Groningen field has been scaled down for years does not help, of course, and makes the Netherlands dependent on other countries.
At the same time, we are on the eve of winter and then it is always necessary to fill gas reservoirs. This gas is not supplied to the market, so supply remains limited. Gas prices in turn drive up electricity prices, because the same gas is also used in the generation of grey energy. The gas has become so expensive and so scarce that coal-fired power stations, which are threatened with extinction and emit up to twice as much CO2 as natural gas power stations, are enjoying a revival.
Problems with the foreign gas supply
Europe does not only count on its own gas reservoirs, but also imports natural gas from abroad. For this it counts on Norway and Russia, among others. And this is where things have been going wrong for a while. The Russian state gas company Gazprom is keeping the gas tap just short of closed, although it could now earn a lot due to rising gas prices. According to Europe, Russia is putting pressure on the European countries in this way, in order to get the plans for the Nord Stream 2 gas pipeline to go ahead. This would involve laying a gas pipeline on the seabed.
For Russia, the Nord Stream 2 gas pipeline has many political advantages that are sensitive in Europe. Russia can, for example, turn off the gas supply itself, whereas countries such as Ukraine and Belarus cannot do this. With the plans, Russia is also undermining European harmony. Countries such as Poland would receive less transit revenue due to Nord Stream 2, while other European countries would in turn get cheaper gas. There is also ecological criticism of the plan, and alternatives are being worked on. Russia, however, is going all out and is putting pressure, via rising gas prices, on countries such as Belgium and Germany, countries that want to replace their nuclear power stations with gas-fired power stations.
It is of course inconvenient that Norway is also supplying less gas. This decline also has to do with the coronavirus crisis. Major maintenance works were planned, but they were postponed due to the coronavirus pandemic and the lockdown. They could not wait any longer, however, and just at the moment when there were already shortages, the maintenance works were carried out after all.
Furthermore, Europe is experiencing problems obtaining cargoes of liquefied natural gas. In Asia, they are even more dependent on this and offer sky-high prices that our energy suppliers cannot or do not want to compete with.
European emissions trading system
Europe has climate targets to achieve and has long been working with a trading system in emission rights for this purpose. These emission rights give companies the right to emit CO2. Companies must have sufficient emission rights or they receive hefty fines. If a company has emission rights left over, it can keep them for the following year or sell these emission rights to another company. The price of the emission rights follows the principle of supply and demand. The number of CO2 rights is systematically limited, making them increasingly expensive. Because the economy is doing well, demand for emission rights is moreover very high.
With more expensive emission rights, it becomes more attractive for polluters to invest in green solutions. This is also Europe's aim. It is difficult for energy suppliers to become greener quickly, so they are still heavily dependent on polluting power stations. The fact is that we are in a transition phase from grey energy to green energy. The current power stations emit a lot of CO2 and so energy producers also have to buy a lot of expensive CO2 rights. In short: energy companies have to pay more and more to produce grey energy and this is passed on to the consumer.
Nuclear power stations are being closed
Various European countries are closing their nuclear power stations, while nuclear power stations are often responsible for a large part of the energy mix. It is unrealistic to replace this with green energy in the short term, so people choose grey energy. For grey energy, costly raw materials such as natural gas are needed. At the same time, more expensive CO2 rights must also be bought. Belgium, among others, plans to close seven nuclear power stations and replace them with gas-fired power stations. According to the calculations, the price tag for this operation would amount to 3,5 billion euros, but that was before gas prices started to peak. In any case, it is money that is not used for sustainable developments, so the transition phase to green energy takes even more time and gas prices are driven up for longer.
02Consequences for the consumer
For consumers, the consequences are not always equally drastic. By no means all consumers are suddenly paying much more for their energy. Those who have a running contract with fixed prices and took out this contract before the large price increases are still safe. These consumers are still paying little for their energy. Even if energy suppliers have to purchase the energy at a higher price, these price agreements remain in place. If these price agreements expire soon or if you have an energy contract with variable rates, you will pay more for your energy.
Even those who are not yet paying more for energy are already noticing the price increases in other ways. Companies are already noticing the consequences of rising energy prices and have to incur more costs during production. Vegetables grown in heated greenhouses, for example, have already become considerably more expensive. These include peppers, cucumbers and tomatoes. We also see the same in flower and fruit growing. Farmers are also at their wits' end due to rising fertiliser prices. That, too, is a consequence of rising gas prices. In addition, PepsiCo and Unilever, among others, have already announced price increases to compensate for rising energy prices. In other words, while the economy is doing well, consumers' purchasing power is declining.
Causes of rising energy prices → Find out now
Energy prices in the Netherlands keep breaking records. This is due to an unfortunate combination of circumstances.
03Frequently asked questions about rising energy prices
For consumers, it is of course not pleasant when the energy bill goes up. They wonder what they should do now and how best to deal with this situation. We answer a number of frequently asked questions about rising energy prices and clear up the uncertainties.
No, that is not allowed. The ACM has already received several complaints, but it published a press release in which it made clear that rising energy prices are no reason to terminate contracts. The ACM clarifies that rising energy prices are part of the business risk and are not special circumstances that justify termination, not even if this is stated in the general terms and conditions. It is true, however, that energy suppliers will probably try to terminate running agreements where there are payment arrears more quickly. However, this cannot simply be done; for example, payment reminders must first be sent.
I have an energy contract with an attractive fixed price. Is the energy supplier allowed to terminate the agreement?
That is anyone's guess. On the one hand, there is the fear that energy prices will rise even further, because winter is traditionally a period in which demand for energy peaks. On the other hand, Putin has already used conciliatory language and indicated that Russia will soon supply more gas to Europe, which will automatically cause gas prices to fall. Moreover, the cabinet can also still do a thing or two, for example by lowering the energy tax. The energy tax is now about a third of the total energy bill, so this can certainly be tinkered with.
How will energy prices develop further?
This depends on the prices included in the energy contract. Energy contracts with fixed prices that still run for at least half a year are best not terminated. If you have a fixed contract that expires very soon or have a variable contract, you can consider locking in the energy rates now for a year. That way you play it safe and avoid being hit by a new price increase when winter arrives. The disadvantage of this is that you will notice any price decrease on the energy bill less quickly. A multi-year contract of more than one year is, however, not advisable, because energy prices will probably start to fall much sooner. In any case, it is advisable to carefully compare the offer of the current energy supplier with that of other energy suppliers. It is now very important to find the best energy deal.
Should I adjust my energy contract now?
No, because it depends on many uncertain factors. It is determined, among other things, by the price of raw materials such as oil, coal and gas. For these raw materials we are heavily dependent on countries with an unstable political climate. Economic developments also play a role, as do the exchange rate of the euro and the weather.
Can the development of energy prices be predicted well?
For consumers, there is little more to do than sit it all out. The only realistic option is to limit energy consumption or to generate energy yourself, although solar panels yield very little during the dark winter months. You limit energy consumption by insulating the house better. In addition, you can also save on the energy consumption of the lighting or on the energy consumption of electrical equipment. Read all our saving tips and find out how you can save energy.
What can I do now that energy prices are so high?
Work out the monthly amount with your usage and feed-in.