Winter is coming. With energy prices soaring, Czech regulators want proof suppliers are ready
Following the sudden collapse of the Czech Republic’s biggest alternative energy supplier, the national energy regulator is seeking assurances from other electricity and gas suppliers that they can meet customers’ needs. Against the backdrop of soaring prices on European exchanges, the Energy Regulatory Office (ERÚ) has asked some 430 licensed energy suppliers here to provide evidence of their capacities by Friday.
With nearly 1 million customers, Bohemia Energy was the largest alternative energy supplier in the country until it went belly up last Wednesday. The company said it was “forced to take the drastic step” of shutting down due to the rapid, extreme growth of power prices on the wholesale market.
Simply put, rather than “buy low, sell high”, as the old Wall Street adage goes, Bohemia Energy found that it had done the opposite, having purchased huge amounts of energy in advance on the wholesale market counting on a price trend that proved unrealistic.
According to the Czech edition of Forbes magazine, Bohemia Energy did not manage to secure operating loans and ran out of money. There was no cash flow to ride out the storm. And so the group asked the Energy Regulatory Office to revoke the licenses of its companies and associates.
Václav Pešička, editor of Czech Radio’s station Plus has long followed developments on the energy market closely, and is moderator of the popular programme Talking Money (Řečí peněží), which interviewed Bohemia Energy’s founder Jiří Písařík last November.
At that time, he says, Jiří Písařík spoke with pride how Bohemia Energy kept its customers abreast of wholesale market prices, explained its method of ‘dynamic pricing’, why and how the company bought when it did and could pass the savings on to them – or share the pain.
“He considered the dynamic pricing method to be the fairest solution and was fully convinced of that. When we interviewed him… there was really no indication that Bohemia Energy was in any financial trouble. On the contrary. He talked about them having annual revenues of over 23 billion crowns, billions in profits, and even his plans to enter into banking services.”
At the end of September, Bohemia Energy asked customers to terminate agreed tariffs and contracts and convert them to so-called “dynamic tariffs” that reflected current prices on energy markets and exchanges. That would have allowed Bohemia Energy to raise its own prices – or lower them.
Now, the Energy Regulatory Office chairman Stanislav Travnicek wants assurances that other Czech electricity and gas suppliers have not engaged in similar practices – and face collapse. With benchmark European gas prices soaring, power prices are at record highs.
And will get higher, especially for former Bohemia Energy customers, notes Czech Radio’s Václav Pešička, because “suppliers of last resort” cannot offer them prices reflecting energy purchased before the surge.
“The problem is really truly pan-European, because energy prices are set on European markets stock exchanges and determined by the market – not by politicians. Politicians can influence them through certain measures, such as distribution fees, such as taxes imposed on energy.
“But energy itself – let’s face it, that market is highly regulated, because energy is a basic and vital commodity. That’s why the free hand of the demand-supply market does not work, and the state enters into it significantly.”
While Prime Minister Andrej Babiš has called on the Energy Regulatory Office to cap prices for former Bohemia Energy customers, neither the regulator nor suppliers of last resort seem ready to do so. The Czech state can effectively reduce prices – through distribution fees, or cutting VAT down to zero.
For the moment, Prime Minister Andrej Babiš has authorised the Minister of Finance to decide on a VAT waiver for November and December. Another option of could be to give out “energy cheques” to households.
The European Union is recommending states consider only targeted support, not across the board. EU leaders are due to address the issue of soaring energy prices at their summit next weekend in Brussels (October 21-22).
