Czech government's vision of ‘self-financing’ renewables support runs up against reality, study says

Shifting all charges for supported energy sources (POZE) to the state will increase Czechia’s gross domestic product (GDP) by less than a tenth of a percentage point at most. Overall, this would boost the state’s tax revenue by no more than CZK 1.2 billion a year, though revenue could also fall if the economy performs worse. Taking over all payments has meanwhile added CZK 17 billion to the state budget—an amount that consumers were originally due to pay. This is according to a study by the IDEA think tank at CERGE-EI. The study says the government’s vision that taking over all payments will pay for itself through increased tax revenue is unrealistic. The Czech News Agency (ČTK) is seeking a response from the Ministry of Industry and Trade.

POZE contributions support electricity generation from renewable sources and from high-efficiency combined heat and power production. This year, the state took over all POZE funding. In previous years, payments were split between the state and consumers. The government says the measure is intended to lower electricity prices for consumers, which fell by around ten percent for households this year. The state will pay all POZE charges next year as well, amounting to CZK 41 billion a year in total.

The government says the measure has reduced energy inflation in the country, with a positive impact on overall inflation as well. The cabinet also says the measure has boosted the performance of the business sector. The authors noted in this context that lower electricity prices have primarily benefited energy-intensive businesses, such as steelworks, chemical plants and paper mills. Removing the charge has also stopped electricity from being put at a price disadvantage compared with gas and coal.

According to the analysis, however, the positive effects on economic growth and tax revenue are significantly smaller than the state’s spending on the charges. The analysis estimates that lower electricity prices could increase GDP by less than a tenth of a percentage point at most. The additional revenue from taxes and contributions could therefore reach no more than CZK 2.6 billion. At the same time, however, the study says that taking over the charges reduced VAT revenue from payments made by consumers. After accounting for this shortfall, tax revenue could rise by CZK 1.2 billion in the most favourable scenario. Conversely, it could fall by CZK 1.4 billion if the economy performs poorly.

“For the measure to fully pay for itself through higher tax and contribution revenue, every crown of subsidy would have to generate almost three crowns in additional GDP. Such an effect cannot realistically be expected in a small, open economy such as Czechia,” said co-author of the analysis Michael Schulz.

POZE charges were introduced in 2006. Since then, more than half a trillion crowns have been paid out in total. Some of the subsidies were provided by the state, while consumers covered the rest through their electricity bills. The exception was 2023, when the government decided to shift all payments to the state on a one-off basis in response to steep price rises during the energy crisis. Since this year, the state has once again covered all the costs, and the government recently decided to continue doing so next year.