Study on pass-through rate: main drivers, country differences and policy implications

Description du marché

The European gas market changed markedly when the global economy recovered from the Covid-19 pandemic and due to the Russian invasion of Ukraine. European gas prices increased to historically high levels after remaining broadly stable for more than a decade. As natural gas is widely used in energy production, energy became much more expensive also on the retail level for firms and households. Due to these events, the relationship between energy prices, inflation and the real economy stepped into spotlight. How do wholesale price shocks feed through to retail prices? The crisis of recent years has shown how understanding the pass-through rates and anticipating the retail sector’s reaction to wholesale shocks is fundamental to design efficient and effective markets and policies. Moreover, even when the crisis is over, the progressive phase-out of fossil fuels and deployment of variable renewable energy sources is expected to generate more volatility in wholesale markets. In this context, it is important to anticipate how this volatility may be transferred to retail prices and how this may affect consumer behaviour. Against this background, there is a limited understanding of how the pass-through rates work in practice, what are their main drivers and how they interact. The economic literature on the topic is relatively limited. The study is intended to fill this gap by conducting a thorough overview of energy markets for a sample of Member States, with the goal of gaining a deep understanding of how these markets work and which factors affect the pass-through rate. The complexity of the topic and the geographic scope of the study, requires a comprehensive expertise of the energy sector, combined with advanced data capabilities and a thorough understanding of the economic and legal country specificities. The contractor would need to assemble a team or a consortium with different background and expertise. Moreover, the contractor should build a comprehensive dataset by relying on the sources it deems most appropriate. These may include inter alia: publicly available sources (preferably), questionnaires as well as interviews with relevant stakeholders, commercial providers, etc. In collecting data and information in any area covered by the study, the contractor shall take into due account existing reports and other relevant sources of information already available, in order to avoid duplication and minimise overlaps. The goal of the study is to (i) identify the key determinants of the pass-through rate from wholesale to retail of electricity and gas prices for different consumer groups, and on that basis (ii) draw indications on which measures have the largest influence on pass-through. Moreover, given the close relationship between energy prices and inflation, solid estimates of the pass-through rates can provide a valuable input for macro-economic modelling which is key to inform the decision making on several areas beyond energy.

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