The capping of electricity prices was approved. Will this help anyone at all?

It looks like the continuous debate on how the government should go about reducing electricity for the end consumer is over. After the House, the Senate also approved the amendment to the energy law, which was confirmed by the President's signature. How will the price of electricity change and what will it mean for the economy and possibly for CEZ shareholders?

What does the amendment to the law entail?

The most important one is undoubtedly the introduction of a maximum price for both power electricity, i.e. the electricity actually consumed, and gas. The price for electricity is to be a maximum of CZK 6 per kWh, for gas including VAT for small consumers CZK 3 per kWh. The final price of electricity should then be between CZK 7 and 9 per kWh. The amendment is also intended to better protect consumers whose contracts are based on prices derived from the stock exchanges.

Theprice ceilings are being lowered for households, entrepreneurs (natural persons), but also for companies (legal entities) that are connected to the low voltage level. In other words, those firms that consume no more than 630 MWh per year.

Under the caps for households, there has been some confusion about what price will apply to domestic boiler houses and HOAs (community of unit owners). Here the same 630 MWh cap should apply. Other customers will have the possibility to be compensated retroactively. This will take the form of a state subsidy under the EU Temporary Crisis Framework rules.

The caps may also be extended to medium and large enterprises connected to high and very high voltage networks. However, this will depend on whether the European Commission's proposed measure to reduce energy prices is approved. The meeting between European leaders will take place at the end of September.

Under the amendment, it should also be easier to terminate a contract that contains so-called price spots. Which are prices that are derived from stock market developments. However, the right to terminate the contract will only be on the side of households, not, for example, companies. Termination under these conditions will apply to both fixed-term and open-ended contracts.

How will the caps affect energy prices?

There is of course no simple answer to this, as it depends mainly on the amount of energy consumed. It is also a little different for every consumer. In any case, the government has come up with models for monthly deposits for both electricity and gas. So we need to take these amounts with a grain of salt, but as a guide it can serve well in any case.

Model example for annual electricity bills:

Model example for annual gas deposits:

Summary

According to the government, the introduction of a price cap should not cost the budget more than CZK 100 billion. Energy suppliers will be entitled to compensation if they can prove losses and reasonable profits. Financing should be through awindfall profits tax, which should therefore really come. Another way will be to use dividends from CEZ.

The aforementioned CEZ will therefore not suffer much from the measure, as its lost profits due to the price cap will be compensated by the government. It may be more affected by the aforementioned windfall profits tax.

If you are even more interested in the subject of expensive energy, I wrote an article last month. In it, you will learn, among other things, how we got into the situation of extreme energy prices in the first place: what is behind the extreme price of electricity on the market?

My take on the government's solution is that one of the best possible ones has arrived. Sure, the response to the situation has been a little slower. Energy prices on the exchanges have been rocketing since basically the beginning of the holiday season, and the situation within the European Union was supposedly not resolved until (!) the end of August. It will cost some money, the debt will increase, but in any case, if it pulls most households out of existential problems and prevents the collapse of most companies, it was a successful plan. To answer my headline question, I guess so. It should help the situation in general.

What is your opinion on price caps? What solutions would you suggest, if any? 🤔