Steel Union: Energy price hikes will fatally threaten Czech firms’ competitiveness

A sharp rise in regulated components of energy prices could fatally undermine the competitiveness of the Czech steel industry, the Steel Union said in a press release today. It warned that companies’ costs could rise by tens to hundreds of millions of crowns a year, with further increases possible as a result of government austerity measures or potential debt relief for NET4GAS, which the state is buying.

The Energy Regulatory Office (ERÚ) has proposed a sharp increase in the regulated component of energy prices for next year, which accounts for a proportion of final energy prices measured in tens of percent. Under the proposal, the regulated component of household electricity prices would rise by 71 percent year on year. The increase would be even steeper for large customers: 113 percent year on year at the high-voltage level and 206 percent at the very-high-voltage level. ERÚ will announce the final regulated component of energy prices at the end of November.

The Union warned that ERÚ’s proposal would increase the amount paid by companies by 200 to 250 percent compared with last year. The increase is even greater compared with this year. „For a model company with annual electricity consumption of 70 gigawatt-hours, this would mean a cost increase of CZK 51 million (227 percent) compared with 2022. For a large steelmaking company, annual costs would rise by more than half a billion crowns,“ the Steel Union said.

It also rejected the government’s argument that a lower price for wholesale electricity from suppliers would offset the higher regulated component. According to the Union, large industrial companies usually secure their wholesale electricity supply by purchasing products in advance in so-called tranches. In such cases, the wholesale component of electricity prices does not fall quickly or significantly.

Steelmakers also noted that, according to Eurostat data, Czechia has the fourth-highest electricity prices for large customers in the EU. „The more forward-thinking EU member states know that supporting industry is crucial in this situation, because otherwise it will not survive the challenging and costly green transition. Nowhere is industry as important to the macroeconomy as it is in Czechia,“ said Daniel Urban, chairman of the Steel Union’s board. He cited Germany as an example, where neither companies nor households have paid anything towards renewable energy support since last year, with the state covering all the costs through its Climate and Transformation Fund. „Not only are we not on a level playing field with competitors from outside the EU, but unfortunately the contest with our European competitors is not fair either,“ said Roman Heide, chief executive of Třinecké železárny.

Another threat, according to steelmakers, is higher gas prices for end customers due to the need to cover billions in debt owed by gas transmission system operator Net4Gas, which the state is buying indirectly. „Energy price increases are being prepared at a time when steel producers across the EU are facing a very difficult market situation due to falling demand in key customer sectors, including construction, low prices and pressure from imported steel,“ the Union warned. It noted that crude steel production in Czechia has fallen in recent months.

Steelmakers also oppose the planned tax exemption for certain fuels used in metallurgical processes, which the government is proposing as part of its consolidation package. The government’s draft state budget for 2024 also makes no provision for payments to compensate for indirect costs under the emissions trading system, despite what the Union says was a previous government promise. „All these measures pose a huge threat to Czech steelmakers at a time when they are expected to invest tens of billions of crowns in decarbonisation,“ added the chief executive of Třinecké železárny.

sip ktp