The draft distribution rates for next year published by the Energy Regulatory Office (ERÚ) caused an uproar in the village. At the same time, the main reason for growth is given in the past and determined politically – if we pay tens of billions for supported renewable resources (POZE), then the regulatory authority will not do anything about it. We all want to be green now, but it comes at a cost.
In practice, the green obligation either has to be paid from the collected taxes (as this year, which can be seen in the uncomfortably high deficit of public finances), or the consumer will see it directly in the energy bill. The second way will have an impact on competitiveness and especially inflation. No other solution to old obligations is possible.
The sad part is that we haven’t learned our lesson. So once again we are hard at work on another problem that will overtake us in a similar way in a few years. Distribution is a service where the large investment costs of a natural monopoly are allocated to participants, historically mainly according to consumption. Which was a socially and economically adequate way in the case of the existence of exclusively central sources.
But today, thanks to, or because of, the Green Deal, we have a different path lined up.
Everyone knows the anecdote where one has a whole roast chicken and the other has nothing. Although statistically they both have just the right amount of half a chicken, the first one is overeaten to the point of bursting, and the second one is starving to death. We are creating the same problem in distribution with ill-conceived investment support for local PV installations.
Let’s imagine a street with family houses and tenements. Today, both groups pay the same 50 for distribution, which costs a total of 100. Then we give one group a PV subsidy and they will reduce their consumption from the grid to one fifth, they will actually only draw from the grid in winter.
If the cost calculation formula does not change, the distribution rates must increase by an incredible 66.6 percent the year after. With unchanged consumption, the first group will then pay 83.3 for distribution, and the second, i.e. the one that received the subsidy, 16.7, to add up to the necessary 100 to cover the investment costs of the network.
This phenomenon is called socialization of costs, i.e. a situation where the group that receives the subsidy saves – but at the expense of others, whose prices will rise. And try to guess in which group you will find yourself as an ordinary consumer.
That it is not a theoretical problem, we have already experienced with water and sewage. At the moment when people began to significantly save water, the price shot up just as quickly, so that the resulting amount of money paid did not decrease – precisely because it was the same problem of calculating the fixed investment in pipes and infrastructure, which is the biggest cost in the water industry, on the metered consumption of the commodity .
If water consumption halved, prices had to double to cover old investments as well as simple renewal. Simply, the same amount of money must be collected for the infrastructure, and if consumption decreases, the price of distribution of the measured unit must increase adequately, this is a calculation from elementary school.
Anyone can play with the savings numbers and shares in the example, but the basic problem remains. Without tariff reform, which will reflect the change in the nature of a significant part of consumers to the so-called prosumer, i.e. to a mix of producer and consumer, and will go against the direction of socialization of costs, we will create another socio-economic problem.
There will be an opening of the cost scissors between poorer residents, who cannot benefit from the savings of self-production, for example in rental apartments or in historic centers, and the owners of suitable real estate, but they will all benefit from not having to participate so much in the costs of distribution. In an extreme case, we will produce a large group of excluded residents in so-called energy poverty from the general population.
We hitch the horse in front of the wagon
15 years ago, in a working group at the Ministry of Industry and Trade, we proposed to solve the first solar problem with connection conditions and tariffs according to European directives on induced costs. It won the Ministry of Finance’s solar tax. Back then it didn’t matter at all, but today at least we wouldn’t create the false impression that distribution can be permanently saved by decreasing the volume of transmitted energy and increasing the randomness and unpredictability of supplies.
Home photovoltaics are sold with the same Barnum advertisement for subsidies as guaranteed energy-efficient cooking pots used to be. Unfortunately, an often “advantageous” investment is drawn both by long-term unrealistic purchase prices (when everyone has photovoltaics, energy purchase prices will have to reflect this), and for the time being by real savings for distribution fees.
But the longer the tariff reform is postponed, the greater the impact on reality will be – and at the same time the state will actually be solving a problem that it created in the first place with unrealistic expectations and subsidy policy. Investing in distributed generation without any tariff reform is putting the coat in front of the horse. With the same consequences.
What we add to one, we must take away from the other
In ancient Rome, messengers of bad news were impaled. Fortunately for me, the messenger can only be impaled once, even if he carries more bad news.
The ERO can probably monitor new investments and costs more strictly, but the really big changes as a result of the Green Deal can only be influenced by politicians, and the office then calculates the resulting bill according to their specifications. So, if we don’t want to pay for it from public budgets, which we probably won’t, it will either create energy poverty or piss off everyone who invested in self-production, there will be no other option.
The determining amount to be calculated will already be historically predetermined outside the ERO by today’s politics and realistically cannot even decrease over time.
This is really a classic zero-sum game, what we add to the distribution of one, we have to take away from the other. Such are the economic principles of the industry, where investment costs are determined by the maximum possible transmission and the required safety, and not by the total or average volume of transport per year.
It is worth adding that the Green Deal itself will not be cheap, but we have the gift of creatively grasping it and making it worse and more expensive where no one wants us to. Good investment decisions cannot be made when the distribution of subsidies precedes the tariff reform, which has been delayed for several years.
It’s just that we meant well, but it turns out like it always does.