Lax approach, delay, further analysis. The government is waiting in vain for an energy solution from the EU

Lax approach, delay, further analysis. The government is waiting in vain for an energy solution from the EU
Lax approach, delay, further analysis. The government is waiting in vain for an energy solution from the EU

Although the energy crisis and the unprecedentedly high prices of electricity and gas may very soon completely paralyze the operation of society, the Czech government surprises many with its lax approach and wait-and-see approach. Many other European countries deal with the enormously rising energy costs that affect both households and companies on their own soil and do not rely on what the European Union comes up with. However, the cabinet of Petr Fiala (ODS) has not yet been very inspired and reacts only very slowly. According to the findings of the Echo24 newspaper, the prime minister is now counting on a national solution by the end of September.

One of the solutions to make electricity cheaper for consumers was the establishment of a state-owned energy trader, which, in the case of the Czech Republic, would buy part of CEZ’s production at a regulated price. At the same time, the Czech government has been talking about the establishment of a state trader since the spring. However, both the Ministry of Finance and the Ministry of Industry refused to comment on this topic. Only last week, Síkela announced that he would propose to the government the creation of a state trader that would buy electricity and gas at guaranteed prices. Even the semi-state CEZ could transform into it.

It is also striking that the Office of the Government has only just now ordered from the consulting company Ernst&Young “Processing an analysis of legislative and non-legislative options for energy price regulation in the context of the current market situation and with regard to current developments at the EU level.” The request was submitted on September 1, stating that that the analysis should be prepared by September 10 at the latest.

It was on September 11 that the government was supposed to comment on whether it would decide to impose a so-called wind fall tax, i.e. a tax on extraordinary profits for energy companies and banks. The government preliminarily calculated with three tax bands from 40 to 60 percent. The profits should then probably be distributed among the most affected consumers in the form of contributions, while the profits would probably only be targeted from 2023. A similar tax has already been introduced, for example, by the Spanish or the British.

Minister Blazek’s plan

A hot topic now is the proposal of the Minister of Justice Pavel Blažek (ODS), who came up with the idea that the state would limit the margins of energy sellers and distributors so that they still make money, but the high prices of gas and electricity do not destroy households. In the proposal that he sent to Prime Minister Fiala on Friday, Blažek proposes a legal solution that would ensure that companies would not have claims for damages.

“The goal of the proposal is to limit margins so that energy producers and distributors do not lose their entrepreneurial motivation, and at the same time energy prices do not ruin entrepreneurs and the population. And that it is a legal solution according to Czech and European law. Legitimate claims for compensation for damages (lost profit and the like) should not arise and the state should not have to endlessly increase subsidy and similar financially demanding policies,” Blažek told the editors. He came up with the proposal in case energy ministers from EU member states do not agree on a joint procedure.

Fiala is said to want a Czech solution by the end of September

Related to this is the creation of a special group of experts convened by the prime minister, which is to prepare a proposal at the Czech level to cap the prices of electricity or gas. “The proposals of individual departments, including the proposal of Pavel Blažek’s group, are coordinated by the group for solving the national form of capping energy prices, convened by Prime Minister Petr Fiala and led by his chief adviser Jakub Kajzler. The group brings together not only experts from the state administration, but also energy suppliers and producers, and engaged the leading consulting companies Ernst&Young, KPMG and McKinsey. By the end of September at the latest, the coordination group will present a finished functional proposal for a national solution to high energy prices for citizens and companies,” government spokesman Václav Smolka told the editorial board.

The Czech government also liked the so-called Spanish route. Spain and Portugal negotiated an exemption with the EC, which they started applying from July. The measure leads to a ceiling on the price of gas used in the production of electricity at 40 euros (about 980 CZK) per MWh. After six months, the price ceiling will start to rise by five euros per MWh per month up to 70 euros per MWh. Any difference between the ceiling and the actual price on the market is compensated by the state, and the government intends to cover it thanks to a special surcharge that all consumers, including households, must pay on their energy bills and is governed by the level of consumption.

A pan-European solution?

Until now, we have also been waiting for a pan-European solution to the energy crisis and a potential reform of the EU energy market, as the head of the European Commission, Ursula von der Leyen, talked about it. She promised to come with it by September 14. At the end of last week, the commission’s proposal appeared, which supports the capping of electricity prices in all EU countries, but in a different form than expected. In it, the Commission talks about setting a maximum price for electricity from cheaper sources, not from the most expensive gas sources, which influence the final price.

The price of electricity is determined by the operating costs of the last, so-called closing power plant necessary to balance the given demand. In Central Europe, the final sources are mainly black coal and gas power plants. The price of electricity therefore reacts strongly to the development of the prices of coal, gas and emission allowances. However, the Commission is proposing a price cap for nuclear, lignite and renewable generation, arguing that they have lower production costs than gas, which is linked to the fact that they are also now making the highest profits. According to the commission, these should be taken from manufacturers and distributed as subsidies to vulnerable households and companies. So it is again the principle of the so-called wind fall tax.

An extraordinary meeting of energy ministers will be held in Brussels on Friday. According to information from the Politico server, over the weekend the EC was preparing other proposals to slow down the rise in energy prices. What is at stake is the separation of gas prices from electricity along the lines of the Spanish model, the capping of Russian gas prices, and the adjustment of trading rules on energy exchanges, where huge sums must now be paid for stock exchange guarantees, so-called margin calls. However, the demand for margining in full arose at a time when electricity prices were changing by dozens of euros per MWh per year. Now we are at completely different values. The state will lend ČEZ up to three billion euros (more than 74 billion crowns) precisely because of the repayment of stock exchange guarantees. The companies of Pavel Tykač and Daniel Křetínský will also receive a state loan.

Central European countries, including the Czech Republic, are also striving for the additional release of emission allowances on the market so that their price falls. Emission allowances, the EU’s tool to burden coal and gas power plants, among others, have risen to a previously unimaginable almost 100 euros per ton of CO2 emitted. The reason is, firstly, that part of the allowances were previously withdrawn from the market on purpose, and above all, that they are facing speculation on their growth. However, it is not very likely that the allowance market would be deeply reformed or the system would be completely abolished.

Last week, German Chancellor Olaf Scholz introduced relatively significant help with expensive energy. His government intends to support households and companies with a package of 65 billion euros. A one-off energy rate of 200 euros for students and 300 euros for pensioners is planned from 1 December. A discounted price for the basic consumption of electricity should also apply. In case of additional consumption beyond the basic subscription, the price would not be limited. However, the government document does not indicate how high the basic consumption is.

The government coalition then wants to finance the electricity price brake by cutting the profits of energy companies that produce at low costs, i.e. mainly nuclear power plants and those based on renewable sources. This is the same principle as proposed by the EC.

Austria has joined the countries that have capped energy prices. The country will cap prices at up to 80% of last year’s average consumption as part of measures aimed at taming rising energy costs. An agreement on the measures was reached on Sunday, when the People’s Party-led Ministry of Finance reached an agreement with the Greens-led Ministry of Defense. The step will bring annual savings for each household in the average amount of 500 euros (about 12,297 crowns at Monday’s exchange rate). We wrote more here.

The article is in Czech

Tags: #Lax #approach #delay analysis government waiting #vain energy solution

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