Whether for the injection of biomethane into natural gas distribution or transmission networks, or renewable electricity into power distribution or transmission networks, the State has decided, through various decrees, to index purchase contracts using two coefficients, K and L. These are calculated from weighted formulas based on two INSEE indices.
Across all sectors, the K coefficient applies to the initial indexing of the contract, while the L coefficient governs annual adjustments.
How are purchase contracts linked to INSEE indices?
The two INSEE indices reflect labor costs and sectoral production prices.
The K coefficient is based entirely on these indices, with a 50/50 weighting between labor costs and production prices.
The L coefficient, on the other hand, combines an unequal split between labor costs and production prices (for example, 30% and 40% for biomethane injected into natural gas networks), together with a fixed component (for instance, 30% for biomethane injected into natural gas networks).
Why is a rigorous estimation of INSEE indices essential?
Because revenues from renewable electricity or biomethane sales are highly sensitive to the evolution of these indices, it is crucial to carry out careful, step-by-step simulations of INSEE indices using the exact formulas defined in the applicable decrees.
As an illustration, the chart below shows the observed evolution of the production price index between December 2004 and June 2012 (black curve), alongside its trend line (red).
This chart highlights several “stylized facts” linked to cyclical fluctuations of the index around its long-term structural trend:
- Acceleration ❶ above the trend between March 2006 and December 2008 (period of economic growth);
- Deceleration ❷ below the trend between January 2009 and January 2011 (impact of the subprime crisis in France);
In June 2012, an acceleration phase ❸, which had started in February 2011, appeared to be drawing to a close.
A rigorous approach to estimating INSEE indices requires a sound understanding of their underlying macroeconomic drivers.
Our Services
Zelya Energy supports you to:
- Perform econometric simulations of INSEE index trends, taking into account re-scaling coefficients between successive series;
- Validate, calculate, or estimate the applicable K and L coefficients;
- Determine annual tariff obligations and operating revenues over the project’s lifetime or valuation period;
- Detail purchase price calculations, highlighting uncertainty margins.
