According to the final price decision of the Energy Regulatory Office (ERÚ), companies expect a larger percentage increase in the regulated component of energy prices than households.
Businesses connected at the high voltage level will experience a year-on-year increase of 105.5 percent, industrial producers at the very high voltage level, on the other hand, will see this part of the price rise by 190.9 percent. Medium-sized and large gas consumers can expect an increase in the regulated part by 11 percent compared to this year.
Compared to the draft price decision from October 30, two items from the regulated part of the price have decreased. Distributors and transmission system operator ČEPS managed to find savings in the amount of four billion, which meant a reduction of fees for distribution and system services by one percent.
However, fees are rising for objective reasons. The Czech electricity system is currently undergoing a series of changes. According to ERO, its modernization and strengthening is necessary, among other things, due to the possibilities of connecting new resources to the network. Interest in hooking up has grown tremendously in the last two years.
However, the main cause of the price difference between 2023 and 2024 is the absence of funds that the state poured into helping customers this year with the aim of relieving them. Now the government is in a more difficult position than it was last fall – the budget is being cut due to consolidation, and entrepreneurs are not the only group that wants to cut back on state funds – teachers or doctors, for example, have the same intention.
Company representatives already warned in October about the effects of the increase in energy costs, especially for energy-intensive enterprises such as smelters, glass plants, steel plants, cement plants, chemical plants, refineries and engineering. The original ERO proposal was unacceptable to them. Despite its reduction, however, according to the Union of Industry and Transport of the Czech Republic (SPČR), it represents a year-on-year jump, especially in the fee for renewable energy sources (POZE) for energy-intensive companies.
“However, we are negotiating with the government and we expect that fee adjustments will still happen,” said Bohuslav Čížek, director of the economic policy section of the SPČR. On Thursday afternoon, after the announcement of the new level of regulated prices, the union discussed the possibilities of assistance with the ministers. “We believe that in the coming days it will be possible to announce more specific rate adjustments so that companies can work with them as soon as possible,” Čížek added.
We will help, the ministers promise
Ministers are considering measures that will reduce the regulated component of the price for energy-intensive businesses that are connected at a very high voltage level. “We are aware that for some companies from energy-intensive industries there may be a sharp increase in energy expenses next year, that is why we decided to listen to the voices of the representatives of the Chamber of Commerce and the Union of Industry and Transport and within about two weeks we will find a solution for these companies.” describes Finance Minister Zbyněk Stanjura (ODS).
However, due to the consolidation of public finances, the state cannot afford comprehensive aid. “As part of the approved consolidation package, we pushed for the possibility of providing state aid with payments for POZE at any time during the year, not just once as at present. If we reach an agreement with the business unions, and I believe that we are on the right track, I will be happy to prepare it quickly,” confirms Minister of Industry and Trade Jozef Síkela (STAN).
The government often makes the argument that companies report high profits even though they had higher electricity and gas costs. “In retrospect, we can say that the situation was not as bad as we expected in autumn 2022. After all, similar measures were taken in other European countries, the situation was the same everywhere,” says Čížek.
Today, however, companies are in a different situation. At that time, energy bills were mainly driven up by the price of the power component, the amount of which is now relatively stable. “Prices in general continue to fall. Although spot prices are higher in the winter months, forward prices for 2024 are now at a record low and the contract for next year is close to 100 euros per MWh,” says Jiří Gavor, director of the Association of Independent Energy Suppliers. However, customers pay the regulated part at the same rate throughout the year.
For our specific conditions, comparing the prices of regulated services between 2024 and 2022, there is a 60 percent increase in the electricity industry, and a 50 percent increase in natural gas.
However, some energy-intensive companies still expect prices to be double to 2.5 times the amount before the energy crisis, i.e. in the fall of 2021. “With a certain simplification, we can work with the fact that the drop in the prices of the power component will be negated by the increase in the prices of the regulated component. This may seem neutral at first glance, but ultimately the impact on our economy will continue to be negative,” warns the Chairman of the Board of Skláren Moravia Pavel Bartoň. For this company, the regulated component means a year-on-year increase in costs of 11.5 million crowns.
However, the increase in regulated prices must be compared with the level of 2022, when part of the prices were not subsidized by the state. “For our specific conditions, comparing the prices of regulated services between 2024 and 2022, there is a 60 percent increase in the electricity industry, and a 50 percent increase in natural gas,” says Petr Havelka, HR director of the engineering company ŽĎAS.
According to energy-intensive producers, the increase in the regulated component will have a negative impact on their economy. Increased energy costs must be reflected in the price of products, which will, however, lose competitiveness against foreign companies.
“Manufacturers here often encounter a misunderstanding about the increase in the prices of their products, from the point of view that the increase in energy prices is a specific situation in Europe. It must be added that they are also struggling with their European competition, where last year and this year they encountered different support from the sector and the entire industry in other EU countries, which made it difficult for them to place their products on the market,” says the secretary of the Association of the Glass and Ceramic Industry of the Czech Republic, Marek Novak.
“Scandalous” unequal conditions
For example, in Germany, which is the main trading partner of the Czech Republic, the local government still subsidizes POZE from the federal fund. It has been doing so since last year, and since January it has permanently reduced the costs of green fees for German wholesale customers. The state also contributes to energy companies in Slovakia, Portugal and Finland.
However, the domestic government plans to transfer the POZE fees back to entrepreneurs who consider it unacceptable in the following year. This difference with other European countries will have a key impact on their price competitiveness abroad.
In addition, a part of Czech industrial companies is oriented purely on exports. For example, domestic glassworks and ceramics factories annually export 70 percent of their production abroad, in some cases it is up to 95 percent of their production.
“We consider it scandalous that Czech companies and households pay higher prices for energy than customers in Germany pay. If the German government will be allowed to subsidize the costs of renewable resources to citizens and companies from the state budget, then the Czech government should proceed identically, or else strongly condemn these obviously unequal conditions directly at the level of pan-European cooperation,” says Bartoň.
The competitiveness of companies will thus be damaged and, as a result, the industry expects a decrease in interest in its products. “With regard to the drop in demand for all products in our industry, we also expect a drop in sales,” says Novák.
The result may be that companies will eventually pay by reducing production, employment and lower tax levies. The domestic market will probably be flooded with imports from neighboring countries, if I leave out Asia and Turkey, which already dominate today.
Thus, the increase in the regulated component of energy prices will have approximately the same effect on the competitiveness of companies as the cancellation of the exemption of production processes from the mineral tax on natural gas and other gases, which the government decided on as part of the consolidation package. In other countries of the European Union, this exemption also applies.
“Starting next year, manufacturers will be burdened with new costs in connection with the consolidation package and regulated energy prices in the order of at least tens of millions per medium or large company,” predicts Novák.
“The domestic market will be flooded by imports”
So companies will have to look for savings in other areas. “The result may be that companies pay gradually by reducing production, employment and lower tax payments as a result. The domestic market will probably be flooded with imports from neighboring countries, if I leave out Asia and Turkey, which already dominate today,” Novák describes.
This will happen at a time when European companies should invest in projects related to the decarbonization of industry.
The increase in energy costs will have a negative impact not only on the costs of companies, but also indirectly on the growth of the price level and the condition of the Czech economy. “The rate of inflation will deepen again, and we will feel the effects in the coming years as well. A number of companies will close and the dependence on the import of a number of things from third countries will increase enormously, not only here, but across the whole of Europe,” said Havelka.
Some companies are already registering a drop in demand. For glassworks and ceramic manufacturers, this trend has been evident since the first half of the year and will become even more pronounced the following year.
“Manufacturers had to increase their prices last year, across production branches. They tried to project into them the extreme increase in energy prices as well as the increase in all inputs and transport. The companies thus lost part of their customers. Often, the original customers started buying products from other regions of the world, which are not burdened by the situation that plagued our region, i.e. energy and inflation,” says Novák.
We act as if the government is all-powerful and takes money from some purse that is otherworldly and always has money in it.
That is why entrepreneurs are once again calling for the state to subsidize energy. However, there are also those who consider the lamentation of other industrialists unnecessary.
According to Kvid Štěpánek, owner of the Isolit-Bravo plastic manufacturing company, further support for entrepreneurs from the state will have the same effect as support programs during the covid-19 pandemic. “As an entrepreneur, I refuse to participate in our grandchildren’s debt. We act as if the government is all-powerful and takes money from some otherworldly bag with money in it all the time,” says Štěpánek.
According to him, companies should be able to deal with rising energy prices on their own. “My philosophy is that we all have to deal with the problems that come our way in some way. We must be glad that they are not in the same shape as in Ukraine,” thinks Štěpánek.
A number of companies are trying to respond to higher energy prices on their own initiative, primarily by measures to reduce consumption, such as insulation, or by producing their own energy from renewable sources, such as photovoltaics or wind power.