How will the price of energy rise? Prime Minister’s one-percent pledge is ‘very bold’

The Energy Regulatory Office (ERÚ) proposed a significant increase in the regulated component of energy prices by tens of percent, while Prime Minister Petr Fiala (ODS) tamed passions by saying that the real increase in the final price of energy would only be by one percent. Experts contacted by the Echo24 newspaper explain how it will actually be and what customers should prepare for.

According to ERO’s proposal, the regulated component of electricity for households should increase by 71 percent year-on-year, which will mean an average price increase of about 1,408 crowns per megawatt hour (MWh) including VAT. For gas, the increase in the regulated component should be slightly lower. For households, the regulated part of gas should increase by about 39 percent year-on-year, which would mean a price increase of roughly CZK 125 per MWh of gas. The price of energy consists of a commercial component, which is determined by suppliers, and a regulated part, which is managed by the state. The regulated component of electricity makes up about 40 percent of the final price for households, while its share is around 20 percent for gas.

Prime Minister Fiala stated that for the vast majority, energy prices will remain roughly at the same level as this year, or at most one percent higher. At the same time, he added that the level of the regulated energy component could possibly be even lower than it is in the current proposal of the Energy Regulatory Office,” added Fiala. The Minister of Industry and Trade Jozef Síkela (STAN) reminded that the main reason for the increase in the regulated part of energy prices is the fact that the state subsidized the regulated component this year in the amount of around 110 billion crowns.

Too risky a move

Energy analyst and chairman of the Association of Independent Energy Suppliers Jiří Gavor told the Echo24 daily that the increase in the regulated component of the price, as announced, can be accurately calculated by every consumer. “When they talk about the 1,400 crowns per MWh, I think it corresponds, if only 700 is roughly the contribution to RES, then 800 crowns are accumulated there. Of course, it can vary according to the type of consumption, according to the type of circuit breaker and so on…,” Gavor said, noting that the power part plays a crucial role.

“Obviously the best bet for the Prime Minister and the government is that for what they now make the regulated part more expensive, consumers will save on the power part compared to what we were paying under the price caps. And it is a fact that consumers who devoted enough time to it or were lucky enough to have an active and good supplier were able to save even more than the 1,400 crowns during 2023,” said Gavor. According to him, there are by no means the majority of such people in the Czech Republic who were able to optimize in this way.

“Even today we see huge differences. Many people pay slowly capped prices (for electricity 6,050 crowns with VAT per MWh – editor’s note) and some pay 2,000 crowns less. It is necessary not to look at those percentages, which look terrible,” Gavor told the editors, adding that the claim that prices would double for entrepreneurs is nonsense. “The regulated component is definitely not dominant. But the trade price will not be affected by Fiala, nor by (Karel) Havlíček (ANO),” said Gavor.

“You can’t talk about general changes, as Prime Minister Fiala talks about it, it largely depends on the commercial part. We need to appeal to people, because we can influence how much we pay for the power part, if we don’t keep an expensive supplier,” added Gavor.

Analyst Jiří Matoušek from Centropol told Echo24 that he considers the return of POZE from 100% and the transfer of 100% of the increase in regulated prices to 2024 as a risky step. “Our opinion is that the rise in regulated prices should have been spread over at least two years (2024 and 2025). One of the main goals must be that the revenues from emission allowances can be used for (at least partial) saturation of POZE and possibly also for the correction of other regulated prices. If ERO really announces the prices in this way, we consider it too risky a step,” said Matoušek.

A bold promise by the Prime Minister…

Creditas bank chief economist Petr Dufek told the Echo24 newspaper that he understands the ERO’s proposal as a shot at how much the regulated price of energy must increase, provided that subsidies applied this year are not taken into account. “A significant part is the fee for renewable energy sources, which, like other cost items, was burdened with value added tax,” noted Dufek.

“If we do a small non-binding exercise and take the current price list for households from the largest domestic company in our hand and take into account the increase in fees by 1,400 crowns in the current calculation, the total price for 1 MWh will rise by 20%,” Dufek calculated, stating that if the price increase should only be in percentage units, for example plus five percent, then the power energy in the price list would have to decrease by more than a thousand per 1MWh, or by 22%.

“Is it realistic with the average price of the contract for the year 2024 currently around EUR 145 (average since the beginning of this year) and the necessary consideration of the daily diagram? I would say not much, but maybe the suppliers will pleasantly surprise us. Of course, the increase in percentage units can be improved, for example, by reducing the original proposal of the ERO,” said Dufek.

According to Česká spořitelna analyst Michal Skořepá, the ERO’s proposal is certainly very drastic, but according to him, it is probably an adequate reflection of the government’s decision to return to fees to support renewable energy sources. “The excited debate about this price increase is thus another example of how the original lofty goal of moving towards carbon neutrality subsequently runs into the limited practical willingness of all of us to accept the resulting increase in energy prices and adapt our behavior to this goal,” Skořepa told Echo24.

According to Skořepa, the Prime Minister’s promise that the total price of electricity will rise by a maximum of one percent next year is a very bold step. “Given the stability of energy prices at current levels, this is probably a likely scenario, however, something may still happen before the beginning of next year that will increase the unregulated component of the price of electricity so sharply that keeping this promise will be problematic (…),” said Skořepa .