- Wholesale energy prices are breaking records, heralding massive increases in electricity bills from next year
- According to the representatives of the energy-intensive industry, without state support, a several-fold increase in electricity prices will end in a wave of bankruptcies of Polish companies
- However, some experts point out: in the vast majority of cases, costs will be passed on to customers. And this means further price increases on store shelves
- More important information can be found on the Onet homepage
The border of 2,000 PLN per megawatt hour of electricity in annual contracts on the Polish Power Exchange in Warsaw has just burst. On Thursday, the quotations reached exactly PLN 2,166.29 / MWh. Not so long ago because in May this year, we wrote about exceeding 1 thousand. PLN / MWh, which already seemed a difficult level for energy consumers to swallow. For comparison, in 2021, the average rate in annual contracts was 384.16 PLN / MWh.
Individual customers do not see these prices on their bills for the time being, because energy sellers will only include them in next year’s tariffs and will have to obtain the consent of the President of the Energy Regulatory Office. The high prices are already affecting companies that did not secure all the energy they need at the prices from a year ago and have to buy it on the current market – and here, as in annual contracts, it is also very expensive. On the other hand, business will be fully affected by increases in 2023, when electricity bills may increase several times.
– We expect a catastrophe – says directly Henryk Kaliś, president of the Electricity and Gas Recipients Forum (FOEEiG), representing the interests of the Polish energy-intensive industry. – There is an avalanche of spectacular liquidations ahead of us, there is no doubt that. What are the energy rates on the stock exchange now, we can see, and the forecasts are that gas prices will be high by the end of the year, so energy prices will not fall either. In such conditions, energy-intensive entrepreneurs stand no chance. The catastrophe is inevitable. This is a question of the first three months of next year – warns Kaliś.
He points out that some steel mills have already stopped production, and some of them industrial factories suffer painful losses. – The most difficult year for industry, however, will be 2023 and politicians must be made aware that there is no exaggeration in our fears. We can already give examples of companies that have liquidity problems – says Kaliś.
The problem will affect not only mills and factories, for which energy is a significant share of the costs. High prices will also hit small and medium-sized enterprises, which will not be able to count on state aid to pay off their bills. If they fail to translate the cost increases into the prices of products and services, they will find themselves in serious trouble.
Alarming data come from the Lewiatan Confederation survey conducted by CBM Indicator at the turn of July and August this year. As much as 81 percent. entrepreneurs declared that due to the expected increase in energy prices in the fall they will have to raise the prices of the offered products by several dozen percent. The increase in electricity bills will also cause companies to limit investments.
Expensive gas determines the price of electricity
The main reasons behind the recent increases in electricity prices are record-breaking gas prices. This is the result of the raw material crisis caused by the Russian aggression on Ukraine. On Wednesday, European gas contracts for September delivery broke the level of EUR 300 / MWh for the first time in history. The cost of producing energy from blue fuel is therefore very high, and it is the most expensive generation units that determine the price of electricity on the wholesale market. Expensive gas makes it more profitable for European countries to produce energy from coal, which increases the demand for CO2 emission allowances and drives up their price – on the EEX exchange rates have again approached the barrier of EUR 100 / t.
In addition, there is the expected strong increase in coal prices for Polish power plants, which translates into energy prices with delivery for next year.
According to industry representatives, the way energy prices are determined is bizarre. – There is a war in Ukraine and we understand that it results in expensive gas. However, in Poland, only a few percent of electricity is produced from this fuel, but we have our own brown coal, which is cheap, and more and more renewable energy. Production costs in a wind or solar power plant are incomparably lower than in conventional power plants. Why is this not seen in energy prices? – the president of FOEEiG wonders.
He points out that the problem affects the entire European energy market. – In my opinion, the European Commission is not working completely in this crisis situation. I do not see Brussels being ready to verify the energy pricing method. Moreover, the crisis legal framework adopted by the European Commission, which enables the Member States to subsidize the industry, is definitely not suitable for the current situation anymore, sums up Kaliś.
At the same time, it appeals to the Polish government to support the energy-intensive industry, e.g. by covering losses for companies, in order to ensure their financial security and save jobs.
Prime Minister Mateusz Morawiecki reported on TVP Info on Thursdaythat the government is working on solutions for the energy-intensive sector to mitigate the effects of high electricity prices. However, he did not provide any details.
Commodity prices will explode
– Next year will be very difficult when it comes to managing energy costs in companies – admits Aleksander Śniegocki, president of the Reform Institute. However, in his opinion, the black scenario drawn by the industry does not have to come true. – No economic collapse and mass bankruptcies are to be expected, in the vast majority of cases, costs will be passed on to customers – assesses the expert. And that would mean further increase in prices goods and services.
Śniegocki notes that energy-intensive companies for which electricity bills account for a very large share of costs, and which are exposed to competition from foreign companies enjoying lower energy prices, have so far been only a few percent of the entire Polish economy. – However, the surge in prices will result in the fact that this group will include enterprises from other industries and the costs of electricity consumption will become an important risk factor for them. The government could take a closer look at the companies in this situation and assess whether it is worth extending protective measures directed at energy-intensive companies to other industries. It is worth doing it as soon as possible, because such state aid would certainly require arrangements with Brussels, emphasizes Śniegocki.
On the other hand, however, he notes that financial support it won’t solve all problems anyway. – Subsequent aid packages may even bring more harm than good if they consist in administrative lowering of the prices of energy carriers instead of, for example, support during production downtime. In the current situation, the economy has to match the demand for energy with the available supply. Any subsidies for energy consumption would replace the painful, but reflecting the actual situation on the market, price mechanism with decisions arbitrarily favoring selected groups of entities. This would increase costs in other parts of the economy, making it difficult to get through the crisis, argues Śniegocki.
Author: Barbara Oksińska, journalist from Business Insider Polska