Czech households’ electricity bills will be lower next year as the country’s dominant electricity producer ČEZ has announced it will slash its prices, and its rivals are expected to follow suit. ČEZ said that its most popular tariff will be 15 percent cheaper, and it has also offered its clients a two-year fixed tariff at an even lower price.
The semi-state energy utility ČEZ announced on Tuesday it would slash the price of electricity in its most popular Comfort tariff by 15 percent. The firm has also introduced a new tariff called Fix; those who sign up for it will pay 20 percent less over the next two years – but they will miss out on possible further price cuts that might come in the meantime. ČEZ CEO Daniel Beneš spoke to reporters about the company’s new pricing policy on Tuesday.
“We have decided to introduce a new tariff called Fix for the period between 2013 and 2015. Our customers who sign up the tariff can immediately start saving 20 percent. We have also decided to announce in advance new prices of electricity in our most common tariff, Comfort, for next year. There, our customers will be paying 15 percent less per kilowatt hour.”
The cuts apply to the prices of basic electricity. The end prices also include distribution fees, controlled by the regulators, as well as subsides for renewable energy sources. Both of these components are also set to go down next year. ČEZ estimates that their clients who do not use electric heaters could save around 1,200 crowns next years while households which use electricity for heating might save over 5,600 crowns.
The company announced its prices for the next year some two months earlier than they usually do. Mr Beneš explained why.
“We thought we would also announce the prices today because we wanted our clients to be able to choose between certainty and flexibility. We don’t want them to feel they could be making a mistake if they wait. We want them to have a choice. So we decided to release next year’s prices of our best selling product now.”
Other major Czech electricity distributors soon followed suit which means electricity bills might go down across the board next year. I discussed the price cuts with Prague-based energy markets reporter Chris Johnstone.
“ČEZ normally makes this announcement towards the end of November and this time it’s come in a lot earlier. In essence, ČEZ is beating its competition, getting in before its rivals so that it can hold to the customers it already has, and to try and pull back the customers, mostly households, that it lost in recent past. That’s the main reason this is happening now.”
So that explains why ČEZ has come up with the news earlier than they usually do. But do the cuts correspond to drops in basic electricity prices on the market?
“Well, ČEZ explains that it has been able to make these quite significant cuts – it describes them as historically the biggest cuts for households and small businesses – because it made some fairly clever transactions over the summer by buying large amounts of electricity on the wholesale markets which it can now sell back cheaply to Czech consumers over the next year or two. That’s how ČEZ argues it’s been able to do this.
“In a way, some of basic reasons for this happing are that ČEZ has been losing market share in the household and small business sector to many small and even some larger rivals that have appeared on the market over the last five to ten years.
“Over the last two weeks, the prices of electricity have been in fact going up quite sharply by about five euros per megawatt hour so what ČEZ said it did in the summer looks even smarter now than even a month ago.”
Is it obvious how much less consumers will actually pay? The basic electricity price ČEZ is cutting only accounts for about half of the retail price, the other components being distribution fees controlled by the regulators and renewable energy subsidies. These two components are also set to go down, so how much lower will the end prices be?
“If you look at the figures and do the calculations you just did, the cut in bulk part price has been around 10 percent. The final cut in distribution prices next year has not been fully decided by the regulators; that has not gone through yet. The amount of renewable support consumers will pay has been fixed at the maximum payment of some 495 crowns per megawatt hour which is lower than the previous year, so it’s more or less clear what will be happening there.”
Do you think other major Czech distributors will follow suit and cut their prices?
“Yes. Some of the major rivals have already responded to what ČEZ said on Tuesday. Bohemia Energy for example said they would cut their prices by around 15 or 20 percent as well. When ČEZ announced these cuts, they were a little sceptical whether all its rivals will follow suit, partly because of these big energy deals that underline what’s it doing now, and it hinted that its competitors have not been so skilful in buying electricity at cheap prices and maybe even made errors by buying at higher prices in the past. But that’ll come out in the wash as they say.”
ČEZ is not only a major distributor but also the dominant producer of electricity in the Czech Republic. The firm posted a net profit of some 29 billion crowns for the first six months of the year – up by over 5 percent from the same period last year. What do the cuts in prices say about the condition of the company?
“Part of the half-year results was some accounting magic and the fact that some losses for its Albanian division were taken into account in the first half of this year as they had been in the same period the previous year. So there were some accounting reasons for those slightly higher profits.
“For the whole year, ČEZ is looking for roughly the same results this year as last year. Overall, though, low electricity prices – and they are pretty low at this moment – are not good news for ČEZ. Just look at its shares prices – ČEZ’s share price was at an eight-year minimum which is not too happy going for the company.
“So generally, low electricity prices aren’t so good. As I said, they were pushing up a bit in the last week or two. Part of the reason for that are the looming elections in Germany and expectations that the new government will have some new carbon tax which will punish coal power plants, or make it less advantageous to burn coal when producing electricity, and put gas-fired power plants back in the pitcher.”
How does all this relate to ČEZ’s plans for the expansion of its Temelín nuclear plant? Last month, the firm admitted for the first time the project could be delayed or even cancelled because of the situation on the electricity market. So how does this relate to the future of Temelín?
“Electricity prices are fundamental for Temelín to go ahead. ČEZ has said that the current electricity prices are probably about two thirds of what ČEZ needs for the expansion of Temelín to be viable. So it really needs either the prices to be around a third higher, or the Czech government to step in and say, ‘we’ll cover the losses that might be incurred during the first five, seven years of operation.
“But frankly, the move that regards the household and small business market, it’s only going to make a marginal impact on ČEZ’s overall profits. ČEZ said itself it expected the final customers to save 1.5 billion crowns but that does not transfer through as a 1.5 billion loss for ČEZ at the end of the year.
“What you need to look at is that if they didn’t do this, would they lose more customers. If it can pull back customers from rival companies, it can sell them natural gas, and it has also started offering mobile phone services. So it can perhaps safeguard its customer base it has now, with the eye of selling these customers more products and services in the future. And in fact, the margins ČEZ is getting on selling gas are a lot higher that those it gets on selling electricity at the moment.”
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