Czechia leads EU in electricity prices, but why?
Based on the purchasing power standard (PPS), household electricity prices in Czechia were the highest in the European Union during the first half of the year, according to data released on Wednesday by Eurostat, the EU’s statistical office. But why? To find out, I spoke with Lukáš Kovanda, Chief Economist at Trinity Bank, about some of the key reasons behind this trend.
First, can we just talk about why Czechia still ranks at the top of the EU in terms of electricity prices?
“The main problem remains the same: Czech households have been paying German-level prices for electricity, but without German purchasing power. Because of this, when Eurostat adjusts the numbers to reflect purchasing power, Czech electricity appears very expensive compared to household incomes.
“The reason Czech consumers pay these ‘German prices’ is that the Czech electricity market is strongly interconnected with the German one. There are several reasons for that. First of all, we’re neighbors, and geographically, the western part of Bohemia is essentially part of the same grid as Germany. Electricity flows freely between the two markets, which leads to price alignment through market arbitrage.
“Another major point is that the Czech government has been reluctant to regulate electricity prices to the extent that countries like Slovakia or Hungary have done. The Czech state doesn’t subsidize household electricity bills to the same degree as those countries. As a result, Czech households face higher prices, but the country also maintains a stronger fiscal position; our debt-to-GDP ratio is much lower than in neighboring countries, including Germany and Austria, but especially compared to those that provide large energy subsidies.”
The UK is often used as an example where construction costs are much higher than on the European continent, say, in Germany. Is it similar in the Czech Republic? Is it more expensive to build infrastructure projects there?
“I’m not sure if this is the main reason. The Czech Republic has been quite successful in building and maintaining its electricity production capacity. We are still a major net exporter of electricity. Just a few years ago, we were among the largest net exporters not only in Europe but globally.
“Thanks especially to our two nuclear power plants, we can produce electricity at very low prices. These plants were originally built during the communist period, even though Temelín was completed after the fall of the Iron Curtain, construction began before then. Once you have nuclear capacity, you can produce electricity cheaply and efficiently.”
And while we’re on the topic of energy diversification. There’s been talk about the Dukovany nuclear expansion, with South Korea involved, using standardized, “copy-paste” reactor designs that are quicker to build and face less regulation. Do you think the Czech Republic is moving more toward nuclear rather than renewable energy sources?
“That may be the case. There are plans over the next decade to build more small modular reactors. If more of these types of facilities are constructed, the share of nuclear energy in our mix will naturally increase, especially when new units are added at the Dukovany plant and possibly also at Temelín. By around 2050, nuclear power could represent a much higher share of electricity generation than today.
“We’ll see what happens with wind and solar power, but the Czech Republic isn’t well-positioned for a large share of renewables. It’s a landlocked country with no access to the sea, limited wind conditions, and relatively few sunny days compared to southern European countries like Spain. So we can’t expect renewables to reach the same levels here as in southern Europe or places like Denmark.
“Because of that, if we truly want to phase out coal and later gas power, we will need to expand our nuclear capacity.”
