From November 1, no household, self-employed person, company with fewer than 250 employees and no public institution, including schools, hospitals and offices, should pay more than 240 euros per megawatt-hour for power electricity, including value added tax. Converted into crowns and kilowatt hours, in which the government is presenting its new plans, it is 6 crowns including value added tax. This is the only hard fact we know about the capping of electricity prices, which was approved on Monday as a “national solution” by the government of Petr Fiala.
All other parameters (who will pay for it, how much it will cost the state) are still very unclear. As well as how this cap will actually work practically on accounts. The various statements and interpretations of ministers, advisers and press spokesmen give rise to more questions than answers.
In addition, on Tuesday, the European Commission sent a proposal for a “European-wide solution” to the debate, which further deepened the information noise and confusion. Based on all available information, we provide answers to basic questions to make it easier for readers to find their way around the topic of expensive energy, which is of interest to everyone, but which is increasingly difficult to understand in a rapid succession of often contradictory information.
Why is the ceiling so high when it is considerably lower in other countries?
In France 46 euros per megawatt hour, in Slovakia 61.21 euros per megawatt hour. Spain and Portugal only have a cap on gas for electricity production, not electricity itself. And the prices of power electricity there are around 156 euros per megawatt hour. Why is it such a high 240 euros per megawatt hour in our country? Why is the ceiling so high when the cost of electricity production in our nuclear power plants is around 35 euros per megawatt hour and in coal plants at the current price of emission allowances around 70 euros per megawatt hour? The entire difference between the production price and the current market price of 469 euros per megawatt hour is the net margin of producers and traders.
The government chose the ceiling so high because the state budget would no longer be able to pay for a ceiling at a lower level. In fact, it is not a ceiling, but a subsidy. Producers and traders will not lose any of the current profits. The government will pay them the difference between the current market price and the ceiling of 240 euros per megawatt hour. It is therefore a pure subsidy from the state budget. The reduction in electricity bills is paid for entirely by taxpayers.
How will it work?
The basic principle, which no one talks about publicly, is that the cap only applies to traders, not to producers. If the producer (ČEZ, Pavel Tykač’s Sev.en, Daniel Křetínský’s EPH, which are the largest) sells electricity to a trader at the current market price of 496 euros per megawatt hour, the trader must sell it to the customer at a maximum of 240 euros per megawatt hour. But such a deal will bring him a loss of 256 euros per megawatt hour. This and his reasonable margin (there is talk of 5 to 6 percent) will be reimbursed by the state. This is a direct subsidy of cheaper electricity. The trader and the producer still earn the same. The subsidy will be paid by taxpayers.
If the ceiling were set at, say, 100 euros, the state budget would have to pay an additional 396 euros per megawatt hour at this market price. That’s why the ceiling is so high. These are extremely expensive subsidies.
How much will it cost the state budget?
The government presented an amount of 130 billion crowns. But this is not a serious estimate. Just a number that was supposed to become some kind of anchor, because it was obvious that the media, economists and investors would ask about the price. In reality, no one can guess. It will depend on the market price of electricity. At this point, if there is no cap on how much manufacturers can sell to merchants, it’s a bottomless subsidy mechanism.
Would it be possible without compensation from the state budget?
Yes, if the state would set a ceiling on the price at which producers can sell to traders. This would be determined as their costs plus a reasonable margin for manufacturers and traders. They would all earn and have no losses from production and trade, but on the contrary profits. Thus, they would have no right to compensation. The impact on the state budget would be zero. The price for customers would be reduced at the expense of the margins of manufacturers and traders. This is the principle proposed by Minister of Justice Pavel Blažek. But the government chose another.
Why won’t the government put a cap on manufacturers?
A basic question that lacks a clear answer. The fact that the producers claim that they have already sold a large part of the electricity in advance plays a significant role in the debate. Unfortunately, the state does not have clear data on how much electricity and at what prices it has already been sold. It does not even have exact data on how many people and companies have fixed contracts. What are the prices? Therefore, the state has to rely only on data from manufacturers and traders and is in a very weak negotiating position. Information is missing from the Ministry of Industry and the Energy Regulatory Office, which are responsible for this.
The government also argues that it does not want to put a ceiling on manufacturers, because it would rather take money from them from taxes on unexpected profits (windfall tax). But she still hasn’t presented here. For the manufacturer, the tax is more beneficial because it will certainly not reach 100 percent of the windfall profits. So far, there has been talk of 60 percent. With a production ceiling of, for example, 100 euros per megawatt hour, they would currently lose 396 euros compared to the market price.
For the state, on the other hand, a ceiling directly with the manufacturers is more advantageous. Money does not have to be withdrawn and redistributed at all. Despite the lower price, they will remain direct to the people.
Another argument why the government is worried about the ceiling on producers is the fear that they would rather export electricity at higher prices than sell it in the Czech Republic. However, this can be prevented by the obligation written into the law to preferentially sell a certain part of the production on the territory of the Czech Republic. The government’s proposal includes a clause that allows the government to order producers to do so. The second fear is that with capped prices, energy companies would simply reduce production.
How are the Czech ceiling of 240 euros per megawatt hour and the European ceiling of 180 euros per megawatt hour, proposed by the European Commission, related to each otherwith?
After the details were published, it turned out that they are completely different things that cannot be compared. The Brussels proposal is not a ceiling for customers, but a price from which the windfall tax should be paid. For example, if electricity costs 496 euros today, that 180 euros per megawatt-hour would be exempt from tax and another 316 euros would be taxed. So far they are talking about 33 percent. However, the proposal also talks about the fact that individual countries will be able to set their own taxation ceiling. It can be above or below the Brussels bar. The tax rate will also be within the jurisdiction of individual countries. According to the current European rules, it is not possible to collect any single tax.
So it is not a “pan-European solution”, where the windfall tax would be the same in all states and derived from the same price of electricity. It is just a kind of concept giving the appearance of a uniform procedure. According to the Treaty of Lisbon, unanimity is required for the approval of any tax intervention. Each state has the right of veto. Of course, there is already discussion in the corridors of Brussels that the tax would be called a solidarity surcharge, which would mean that the right of veto would not apply to it.
In the current intervention in the energy sector, words are used in a very rubbery way, which creates chaos in the debate and great misunderstanding. So the Czech ceiling is effectively a subsidy. Brussels is the bar for calculating the tax. And that tax is called solidarity surcharge.
When will all the details become clear?
They will be in two documents. Today, only the amendment to the Energy Act, which determines the principles, will be discussed in the Chamber. The prices themselves are set by the government by its own measure. It took this right from the Energy Regulatory Office by changing the law. It can thus change the ceilings for customers, traders and manufacturers without further approval of the House of Representatives.
Because a lot of misunderstandings and ambiguities arise: the whole debate is only about the price of power electricity. It is the only one not regulated at the moment. All other items on the invoice: distribution and accuracy, as well as the fee for renewable sources, are long-term determined by the Energy Regulatory Office.
Is there a ceiling for larger companies?
No. The government says this would not be possible under European law as it would be considered illegal public support. Because it is actually state subsidized electricity. So far, only selective subsidies are being prepared for large companies.