HOUSEHOLDS in Slovakia will start receiving heftier bills for natural gas in July even though the increased rates do not put gas prices at the level where Slovakia’s major gas utility, Slovenský Plynárenský Priemysel (SPP), would like to see them. The state’s utility regulator, the Office for Regulation of Network Industries (ÚRSO), approved an average 6.92 percent increase in gas prices for households as of July 20. Prices of gas used for heating will climb by 9.37 percent, on average, which might also be reflected in a 6-percent hike in household heating costs.
SPP, which had requested an almost 8-percent price increase for household gas use and a 40.43-percent increase in gas prices for producing heat for households, claims that the newly-approved prices will cover only part of the company’s costs linked to supplying gas to these regulated segments.
“Based on its own analysis and calculations, the office did not agree with the proposals made by SPP,” stated Jozef Holjenčík, the head of ÚRSO.
Holjenčík said, as reported by the SITA newswire, that if ÚRSO had agreed with SPP’s proposals for household gas prices then the annual costs for households would have increased by €8 to €340, depending on the household’s category of gas consumption. ÚRSO calculated that the approved increases would increase annual costs for households which use gas for both cooking and heat by an average of €77, SITA wrote.
According to an official release from SPP, its losses in 2010 in the regulated gas-supply segments reached €70 million, which the company claims is backed up by an independent auditor’s report.
“The European gas market is interconnected and in its gas policies SPP must consider the same factors as in the surrounding countries,” Ondrej Šebesta, SPP’s spokesman, told The Slovak Spectator. “The key factor which influences the purchase price of natural gas is the price of oil.”
Šebesta said the actual price for oil is 40 percent higher than the figure used by the regulator when setting the regulated prices for natural gas for 2011, adding that this is such an extraordinary situation that SPP had to react.
The increase in household gas prices, which will take effect on July 20, has set off a political blame game.
The opposition claims that the government of Iveta Radičová has cut itself off from influencing the energy sector and Smer party chairman Robert Fico went on to claim that ÚRSO, led by a nominee of his party, has acted to protect people’s wallets and purses. The Economy Ministry then responded, as reported by Sme daily, that Fico’s party is responsible for the higher cost of gas since the issues is under the authority of ÚRSO.
SPP is 51-percent owned by Slovakia’s National Property Fund and the remaining 49 percent is held by Slovak Gas Holding B.V., a consortium of E.ON Ruhrgas AG and Gaz de France.
Energy security experts say that discussion of gas prices is likely to intensify across Europe in coming years in the wake of Germany’s decision to gradually close its nuclear power plants and switch at least partially to natural gas, increasing overall gas consumption within the EU.
Regulated gas prices in Slovakia for household use increased by an average of 4.47 percent at the beginning of 2011 and prices of gas used for production of heat went by an average of 6.12 percent.
Competition arrives
Beginning this year, households can choose their natural gas provider.
Peter Marčan of the Institute of Energy Security, an energy think-tank, said that SPP is pressed to a certain degree by the arrival of new suppliers of gas but that this is occurring primarily among larger-scale users such as industrial enterprises.
“The competition is coming for households, though slowly, and the fact that this is a positive development is proven by the fact that these firms say that they will not hike prices and will again press on SPP,” Marčan told The Slovak Spectator.
Marčan added that the difference in consumer prices offered by SPP and other suppliers emerges at the point of the wholesale purchase of gas.
“While SPP has a long-term contract where a mechanism for the purchase of gas from Gazprom is set, alternative providers to a larger degree are able to purchase gas in the spot markets,” Marčan said. “Moreover, it is always more attractive for a new player to have a zero margin, in some cases even a negative margin, since this player needs to break through in the market and gain a certain share while developing its brand perception with potential customers.”
Regarding Germany’s decision to gradually shut down its nuclear stations, Marčan said this will increase demand for natural gas and prices will climb as well.
Marčan believes much of the lost output from Germany’s nuclear power plants, more than 22,000 megawatts, will probably be replaced by gas-fired steam generators as these are also needed as a backup source for wind generators, the source Germany has said it will seek to build as a replacement for the shuttered nuclear plants. But he added that adding 22,000 megawatts in electricity capacity by wind power is most likely impossible.
“Moreover, there will be increased gas consumption in the European Union in connection with the new period for trade in greenhouse gases [within the Emission Trading Scheme] which will start in 2013,” Marčan added.
The energy expert said that since energy-producing firms must purchase these quotas, it will show up in their costs and for that reason firms will search for cleaner fuels, meaning that some will switch from coal to gas so that they can remain competitive.
“This reason will also realistically push up demand for natural gas,” Marčan said.
