Is it really appropriate to cap electricity prices?

At the end of last week, the price of one megawatt-hour of electricity on the Leipzig Stock Exchange went above 1,000 euros. However, a day later, the situation started to improve. Electricity has fallen and today it reaches half of this level. Among other things, proposals for price ceiling policies have a great influence on the improvement of sentiment on the electricity and gas market. But is this one correct? How will the leading electricity producers react?

European energy companies have had an excellent first half of the year. However, due to the impact of politics, a drastic change in the trend is expected in the latter. Domestic EZ and Germany’s RWE and E.ON showed extremely good results. In the first half of the year, RWE recorded the most significant increase in demand for inter-annual traffic, whose revenues increased by almost 92% to EUR 16.2 billion. However, the profitability of EZ and E.ON was significantly higher than that of RWE. In the same period, EZ reported the highest increase in certain profit per share, which rose by 217%.

Pointer

EZ (CEZ1.CZ)

RWE (RWE.DE)

E.ON (EOAN.DE)

ROA

3.6%

1%

3.6%

ROE

27.6%

10.1%

33%

ROC

16.4%

6.6%

12.2%

EBITDA mare

49.2%

18.1%

7%

Operating mare

35.5%

13.3%

3.9%

ist mare

27%

12.9%

4.3%

Comparison of profitability and losses of energy companies for the first half of 2022. EZ was the most profitable company in this comparison. Source: Bloomberg

If the European Energy Council at its extraordinary meeting on the 9th decides for a pan-European price ceiling, it will have a significant impact not only on public finances, but also on energy companies and households. The price ceiling, which Portugal and the European Commission agreed on, has been in effect since then. The first panel proposes that pan-European regulation of energy prices be introduced, while the president of the Czech Republic demands that only gas prices be capped.

In Europe, the supply of energy is now limited due to stagnant production capacity and lack of commodities. In response to the current situation, German Economy Minister Robert Habeck is considering maintaining the operation of the nuclear power plants there. The lack of supply and demand on the European electronics market means that on the one hand there will be less electricity, but at the same time its price will also increase. This will result in extraordinary budget expenditures, which will deepen the deficit and give rise to inflationary pressures. Depending on demand over supply, there are also companies that will not want to produce more energy at a regulated price.

A determined politician can strongly influence the performance of energy companies, regardless of the fact that it has been a while in some countries about their profits being taxed out of the ordinary. Investing in energy companies now appears to be very risky. The introduction of a price ceiling could reduce the valuation of companies that have jumped since the beginning of the year. it was dampened by EZ shares, which fell by 18% to K 987 per share from their peak on June 9. A similar trend can be observed at RWE, its shares fell from the summer high reached on August 25 by 12% to EUR 38.08 per share today.

According to estimates by the Minister of Industry and Trade, Jozef Skelá, a price ceiling of EUR 500 per MWh could cost the budget of the Czech Republic 750 billion crowns. For both economies, you can trade with similar amounts. The Germans are hiding EUR 28 billion with the help of the residents, which could be used to build nuclear infrastructure.

Tom Black

He became interested in financial markets during his studies at the gymnasium. At that time, he also gained his first experience with journalism, when he worked as a commentator for a long time under the head of the Institute of Economics. Tom Cverna mainly talks about fiscal policy or stock markets. Among his main interests are five fundamental analyzes of the company and the market. Since June 2022, he has been working as a trainee market analyst at XTB.

XTB

XTB, as a leading European broker, was founded in 2004 and is one of the largest brokers in the world with offices in 13 countries, including the Czech Republic, Slovakia, Great Britain, Spain, Germany, France and Chile. The Prask office has been here since 2008. It is regulated by world supervisory bodies such as the British FCA, the Polish KNF or the Cypriot CySEC. Since 2016, the company has been listed on the Varavsk stock exchange.

Things at https://www.xtb.com/cz.

The article is in Czech

Tags: cap electricity prices

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