Experts: Capping penalties for early exit from energy supply contracts will make the Czech market clearer

Setting a maximum penalty for terminating an energy supply contract early should make the market clearer and bring greater consistency for customers. Until now, suppliers have followed their own rules in such cases, which could vary. A penalty of up to 40 percent of the remaining amount the customer would have paid could reach thousands or even tens of thousands of crowns. This is according to comments by analysts and suppliers to the Czech News Agency (ČTK). Suppliers say penalties for early contract termination are not very common.

The Chamber of Deputies approved last week a maximum penalty of up to 40 percent of the amount customers would otherwise have paid if the contract had run to its end. It will apply when customers have a fixed-term energy supply contract and terminate it early.

Analysts say that in some cases, such as ending a three-year fixed-price contract in its first year, the penalty could reach tens of thousands of crowns. The Energy Regulatory Office had initially proposed a lower penalty, but the Chamber of Deputies approved a proposal with a higher one.

Radim Dohnal, an analyst at Capitalinked.com, noted that the adopted amendment does not introduce new penalties but sets an upper limit on them. He considers the existence of a penalty itself appropriate, and says capping it gives consumers a better position.

„When a consumer orders a certain quantity of energy to be supplied at a certain time and price, the trader has to buy it somewhere. If a customer leaves the trader on a larger scale than the tolerated deviation allows, the electricity bought by the trader would remain unused, and the party that sold or supplied it to the trader could rightly claim that it had suffered a loss,“ he said.

„Suppliers cannot get out of their own purchases. By contrast, some customers may have exploited the situation by repeatedly benefiting from fixed-price products without honouring their contracts—for example, when energy prices on the market were falling,“ added Jiří Tyleček, an analyst at XTB.

Suppliers' practices have often differed until now because the Energy Act did not specify penalties for early contract termination. Jan Hamrník, spokesperson for the Energy Regulatory Office, told ČTK that suppliers currently proceed under the Czech Civil Code, which requires penalties to be proportionate to the circumstances. No precise amount had been set.

„In general, standardising penalties for early termination of a fixed-price contract is a step that will provide greater protection for customers, because until now each supplier handled this independently and penalties were not capped in any way,“ said ČEZ spokesperson Alice Horáková.

According to suppliers, early termination of a fixed-price contract with a penalty is not very common. „Suppliers usually try to find a solution to the situation with the customer,“ said Karel Hanzelka, spokesperson for Pražská energetika. Roman Šmíd, commercial director at epet, said the company had recorded only a handful of similar cases. „I don't think the change to the law will fundamentally alter customer behaviour in this respect,“ he added.