The Czechia is heading towards a ceiling on electricity prices

Chaos and uncertainty prevail on all fronts ahead of Friday’s meeting of European Union energy ministers in Prague, which was convened by Czech Industry Minister Jozef Síkela. This is an extremely sensitive topic that will affect the standard of living of hundreds of millions of Europeans in the coming months. The stakes are really high. Therefore, various leaks of alleged proposals are flying through the public space across Europe, testing the reactions of markets and people. Politicians are outdone in their statements. When they don’t have a solution to present, they at least form another committee of experts. As recently announced by Prime Minister Petr Fiala.

In the chaos, however, at least the outlines of what may happen to electricity prices in the coming weeks and months are emerging. The first is that the chances of a unified European solution are not high. The interests of individual countries and the key political and business players within each are so different that a unified model that would be at least compromise acceptable to all is highly unlikely.

In the end, the compromise will most likely be benevolence and a silent shutdown of the European electricity market. Style deal: Do it your own way. Just be as considerate of each other as you can. No one will criticize anything, we will close our eyes and try to get through the difficult time of the energy crisis without mutual friction, into which Europe maneuvered itself by turning off nuclear and fossil sources in some countries, and there is simply a lack of stable power plants. It will be like during covid, when each country dealt with restrictions, including border protection against the entry of citizens from other European Union countries, in its own way. That’s when the Schengen system of free movement was quietly shut down. Now the single electricity market will be shut down quietly.

If by some small miracle the solution were to be found, it would probably be a ceiling on the price of electricity. This will depend on the actual costs of individual producers plus a state-regulated margin. This solution is advantageous for countries that do not generate electricity from gas, which is now extremely expensive. We can belong to this group from day to day. We produce only eight percent of electricity from gas. At the same time, we export 20 percent of the total production. So even if we shut down the gas power plants right now, we will have enough electricity. On the contrary, this scenario is very advantageous for countries that have built their electricity production on gas. Which is primarily Germany. It is precisely this different impact that threatens the agreement on the European ceiling on the price of electricity.

Prime Minister Petr Fiala announced yesterday that if there is no European agreement, there will be a national solution. According to available information and the statements of various members of the government coalition, the national solution is a ceiling on electricity prices. This would be calculated as the cost of producers and sellers plus a regulated margin. The advantage of the ceiling is that the state does not have to compensate anyone from the budget.

This is a solution for electricity that is relatively easy, especially in our country, where we produce it cheaply in nuclear power plants – and without emission permits it would be cheap even in coal-fired ones. The gas solution will be significantly more demanding and expensive. We import it at a high price. If the government decides to somehow make it cheaper for people and companies, it will have to directly subsidize the price from the budget. It depends on where the ceiling would be. But with extreme upswings, where gas has soared to multiples of last year’s prices, it is clear that this intervention will be extremely expensive for the budget. And then the debate begins about what to pay for it. Energetics will no longer have any extraordinary profits at the ceiling. The windfall tax for refineries and banks will naturally come back into play.

The article is in Czech


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