Expert: A state-owned energy trader would disrupt the market and not lower the price anyway

Expert: A state-owned energy trader would disrupt the market and not lower the price anyway
Expert: A state-owned energy trader would disrupt the market and not lower the price anyway

The creation of a state-owned energy trader was urged by the cabinet last week in response to rapidly rising energy prices and ongoing uncertainty over whether local governments will be offered new contracts by energy suppliers.

This new trader would have a more advantageous position in the market than private traders and could help with the purchase of energy for counties or hospitals, for example.

Since its inception, the state has promised to gain greater control over pricing, thus lower energy prices. But according to experts, this may not work. No matter who owns the company, it must buy from the same market as others.

If there is a shortage of cheap resources, the price is higher and higher until supply and demand balance is reached. The state trader has no influence on this.

Michal Macenauer, director of strategy EGÚ Brno

“Problems of supply and demand will not be affected, let alone solved. The high price is not generated by traders, but by the balance of supply (production) and demand (electricity),” explains Michal Macenauer, director of strategy at the energy consulting firm EGÚ Brno.

Energy prices are currently driven by the reduction of natural gas supplies from Russia to Europe, but also by other factors – for example, the reduction of electricity production from water in the south of Europe and from nuclear power in France. “When there is a shortage of cheap resources, the price goes higher and higher until supply and demand balance. The state trader has no influence on this. There is no possibility of lowering the price due to the title of merchant ownership,” explains Macenauer.

The government plans to establish a state trader by the end of the year. However, a similar process normally takes years, and the specific form of such a state-owned company is not yet clear. “I estimate that it can take about 1.5 to two years to build such a business,” says Macenauer.

However, the emergence of a new trader also imposes other demands. “Trading in energy, especially electricity, is highly non-trivial and requires tens to hundreds of very erudite people, a sophisticated information system and practice. Otherwise, the risk of its decline is considerable,” explains Macenauer.

However, the establishment would also be preceded by the necessary approval from the European Union, because, according to Macenauer, a state trader would undoubtedly disrupt the market environment. “Since there is no reason to introduce a state trader, I am very skeptical that this approval would come,” Macenauer thinks.

If this merchant had preferential conditions and could afford a lower price for any reason, then it would be unfair and illegal competition.

Michal Macenauer, director of strategy EGÚ Brno

Pros, but also problems

Although the government believes that energy bills would decrease thanks to the establishment of the trader, the measure would also have negative effects. According to the expert, the market environment would be disrupted or even devastated, because the state trader would gain a better position on the market.

“If this merchant had protective conditions and could afford a lower price for any reason, then it would be unfair and illegal competition,” explains Macenauer.

According to the Minister of Industry and Trade Jozef Síkela (for STAN), in parallel with the preparation of the trader, the purchase of energy will also be prepared, which the trader would sell to the public sector at more favorable prices.

“Based on the topicality of the situation, we decided to speed up the establishment of a state energy trader, the so-called single buyer, which would procure and buy energy for entities (for schools, kindergartens, hospitals, self-governing units) with the provision that it would be in the form of an agency, or independent subsidiaries under the MPO,” said the head of the department.

According to Síkel’s proposal, producers would have to sell the produced energy through a state-appointed trader at a regulated price. The latter would further provide it to a certain group of customers, in the currently envisaged case it would be public administration, i.e. hospitals, schools, etc.

However, lower energy prices would have to be subsidized by the state under any circumstances, even without a state trader. “They can subsidize even in today’s market arrangement. The money from the so-called savings tariff will also go through existing traders,” says Macenauer.

The government has several options in reserve to tame energy prices. On Wednesday, Prime Minister Petr Fiala (ODS) discussed the company’s transformation with ČEZ director Daniel Beneš. “Our goal is to bring the production of electricity in the Czech Republic under greater control,” said Fiala.

The entire ČEZ of the state

Thus, the option of nationalizing ČEZ may still be in play. Now over 69 percent of the company’s shares are owned by the state, the rest is held by tens of thousands of private investors. An option would be, for example, the purchase of the share of minority shareholders by the state, but it would be difficult.

At the same time, there would not have to be a division of the company into a production and a commercial part, which is also the subject of debates. In this case, ČEZ would be divided into a production part with fossil fuels, which would be nationalized. The other part – commercial, distribution and with renewable energy sources – would remain in the hands of private shareholders.

“The question surrounding the transformation of ČEZ leads me to establish the single buyer function separately, either in the form of an agency or in the form of a joint-stock company,” Síkela said on Wednesday. In France, the EdF company was taken over by the state, and now the shareholders are asking France for damages in the amount of eight billion euros.

That is why the state will negotiate with major energy suppliers, and at the same time is considering a plan to establish a so-called single buyer. The government already has a plan.

The article is in Czech

Tags: Expert stateowned energy trader disrupt market price

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