Energy price compensation should not exceed CZK 200 billion, Czech ministry says

The cost of state compensation introduced due to high electricity and gas prices should not exceed CZK 200 billion next year. The Ministry of Industry and Trade (MPO) stated this in a draft government regulation on compensation provided in connection with the setting of maximum prices. However, actual costs should be lower, it said. According to previous government statements, the measures should cost no more than CZK 170 billion.

The draft, highlighted by iROZHLAS.cz, was sent by the MPO for consultation today. Prime Minister Petr Fiala (ODS) said last week that the government would approve the compensation mechanism at the beginning of January.

The total compensation of CZK 200 billion is based on the assumption that the average annual electricity price on the spot market will not exceed EUR 350 (around CZK 8,500) per megawatt-hour (MWh), and that for gas it will not exceed EUR 120 (CZK 2,900) per MWh. „Almost one-third of Czech electricity and gas consumption will be procured through spot markets, and therefore price developments on these markets will fundamentally affect the overall impact not only of the proposed government regulation on the state budget,“ the MPO said. According to the ministry, a EUR 10 per MWh movement in electricity and gas prices results in a change of around CZK 1.25 billion in withdrawals from the state budget.

The MPO expects lower compensation costs than currently anticipated for large industrial companies, because subsidies for them are limited by an agreement negotiated in the EU. „For this reason, the actual costs of covering all compensation should be lower than the stated CZK 200 billion,“ it said. In the event of potentially higher compensation costs in the electricity sector, the ministry expects their impact to be reduced by higher levies paid by electricity producers into the state budget. This is because they will have higher revenues from electricity sold.

In the autumn, the government set energy price caps of CZK 6,000 per MWh of electricity including VAT and CZK 3,000 per MWh of gas. Distribution charges must be added to this. The cabinet initially approved the maximum prices for households, small and medium-sized businesses, and public institutions, organisations and non-commercial entities. In mid-December, the government also approved electricity and gas price caps at the same level for large companies. As in the case of small businesses, the caps will apply to 80% of the highest monthly consumption over the past five years, which is intended to encourage companies to save energy.

Last week, Fiala announced that the government had agreed on the form of the compensation system for capped electricity and gas prices with the largest energy suppliers. Companies should receive compensation in advance for each month, and the system may change during the year.