How to tame energy prices? We are talking about all these variants

Home electricity for cheap? Leaving the stock exchange will not solve electricity prices, experts warn

“Of all the solutions considered so far, the Spanish system is the least drastic intervention in the functioning of the market, and at the same time it is clearly bearing fruit on the Iberian Peninsula,” commented Patria Finance chief economist Jan Bureš.

“However, according to a preliminary proposal published by the media at the end of last week, the European Commission intends to do something quite the opposite. On the contrary, to put a cap on the sales, or rather the profits of all sources of electricity production other than gas,” pointed out the chief economist of Trinity Bank Lukáš Kovanda.

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He admits that thanks to this proposal, gas consumption would not increase, which happened precisely in Spain or Portugal. “Increasing gas consumption in the upcoming heating season is understandably not desirable in the least. The entire EU has to economize on gas due to significantly reduced supplies from Russia,” added the economist.

However, Michal Macenauer, director of strategy at the energy consulting firm EGÚ Brno, sees various pitfalls in determining maximum prices. “If we don’t force the producer to deliver electricity at a certain, lower price, then the state will have to pay the difference? And how do we force manufacturers to deliver at a non-market, lower price? Will they then want to cooperate and produce with the state? And how do we determine the price, based on what calculation? The whole implementation can easily go awry in a situation where there is a significant lack of electricity,” he warned.

Close the market? There are fines

Sometimes there are also opinions that a closed Czech market would lower electricity prices. Today, they are governed by the prices on the Leipzig stock exchange, and their level is determined by the last source that enters the market. These are gas-fired power plants that produce expensive electricity from gas. František Hezoučký, a nuclear expert from the University of West Bohemia in Pilsen, explained that at the time when the Czech Republic had a separate electricity market, all power plants belonged to ČEZ and were also started according to costs. The most expensive ones also went to the end.

“Gas units have never set prices for the end customer. The price was averaged, which was possible within one company. This is not so simple if several power companies supply the network,” added Hezoučký.

Oil production in Russia. illustrative photo

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However, European legislation stands in the way of a closed market, and in addition, electricity flows further east and to the Balkans through the Czech Republic. The Czechia would thus expose itself to the threat of European fines and would also beg for retaliatory actions from neighboring countries from which gas and oil flow to the Czech Republic.

The Ministry of Industry and Trade also came up with the idea that prices could be controlled by a state-appointed trader who would ensure the supply of energy to public institutions. Regions are also calling for such a trader, while the government will choose from several options on Wednesday.

We save on energyWe save on energySource: DiaryHowever, energy price ceilings are most often used. The European Energy Council will discuss this again on Friday and they will choose from several proposals. The Minister of Industry and Trade Jozef Síkela (for STAN) emphasized that it is necessary for the ministers to reach an agreement. Otherwise, the market would react by raising prices further.

Five considered options to tame energy prices

1. Capping gas prices for electricity production in the EU
Gas-fired power plants would be compensated for high gas prices above a specified level. The gas power plants would then send price offers to the exchange that would correspond to the highest set price. This will reduce the impact of expensive gas on the price of electricity. This system operates in Spain and Portugal, it is called the “Iberian exception”. Put simply: businesses and households pay a small fee on their electricity bills, which offsets the production costs of gas-fired power plants. Thanks to this, the resulting electricity bills will be cheaper for everyone.

2. Capping final prices with financial compensation
An electricity discount or financial contribution that will mean that the consumer will not pay more than the set ceiling. This discount would be financed from funds collected in the form of a special tax mainly from the energy sector.

3. Introduction of a state-designated trader
Producers would have to sell their production through a state-appointed trader at a regulated price. This state-designated merchant would then sell regulated electricity to other merchants or to a state-designated group of “protected” customers (such as hospitals or schools). In this case, a system would have to be set up to prevent abuse.

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4. Capping electricity production prices
Officially mandated capping of the production price for power plants. However, due to the interconnected European environment and energy trading on stock exchanges, this procedure would be difficult to apply. It could lead to a reduction in production and an increase in the consumption and export of electricity, thereby increasing its shortage.

5. Restrictions on cross-border trade
The Czechia could “lock itself” only with its electricity (produced on the territory of the Czech Republic). This would most likely be followed by “retaliatory actions” by other states, which we now urgently need for other raw materials. Although the Czechia exports about 10 TWh of electricity per year (if it has surpluses), it must also import 80 to 100 TWh in gas and oil. For such an “energy European exit” there would be a threat of lawsuits or a fine from the EC.

The article is in Czech

Tags: tame energy prices talking variants

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