Pass-through in EU electricity and gas markets

The sharp increase in electricity and gas prices in 2022 caused concern for households, businesses and policymakers across the EU. As a result of the gas supply constraints stemming from Russia’s invasion of Ukraine, wholesale prices of electricity and gas rose sharply in all Member States. On the other hand, the effect on retail prices – the price consumers pay for electricity and gas – differed across Member States. This section presents developments in electricity and gas prices over the past 2 years and examines the pass-through – the effect that changes in wholesale prices have on retail prices – from wholesale to retail prices, and how this has differed across Member States. It also presents some of the factors that could explain the differences in pass-through. The data shows that the peak in wholesale electricity prices was followed by an increase in retail prices equal to, on average, 46% of the increase in wholesale prices, and that retail prices peaked 2 months after the wholesale price peak. This share ranged from 1% to 135% across Member States and occurred with different lags after the wholesale price peak. For gas, the retail price increase corresponded, on average, to 50% of the wholesale price increase, and ranged from 0% to 153% across Member States. There are multiple explanations for the differences. First, consumers in Member States with regulated prices were protected from the increase in wholesale prices. Second, some Member States have adjusted taxes, levies and network charges to limit the pass-through. Third, the level of competition in a market can influence pass-through. And last, fixed-price contracts result in a lag in transmission from wholesale to retail prices. Member States where a high share of consumers had such contracts could therefore have experienced a slower average pass-through.