How Slovakia shields households from surging energy prices

Uncertainty in households revolving around energy bills for this year has vanished after a regulator published final prices in recent days, but anxiety is not disappearing as prices across the board continue to grow in Slovakia.

More than 400,000 of 1.8 million households are estimated to be threatened, for instance, by energy poverty.

The country's regulator, the Regulatory Body for Network Industries (ÚRSO), calmed people in December, when it announced that the government's extraordinary measures would determine by how much households' electricity, gas and heating bills would increase.

At that time PM Eduard Heger claimed that electricity prices would increase by 380 per cent without the state's intervention, while his finance minister Igor Matovič argued that electricity would not become more expensive for households in 2023.

"European households will be envious of our energy prices," Matovič said.

Slovakia plans to spend €6 billion on keeping energy affordable to households this year, in addition to further billions of euros that have been and will be spent on energy aid for businesses, municipalities and organisations. This would not be possible had the state budget not been approved at the last minute and before Christmas.

Earlier on, in November, the government decided to adopt a decision on the general economic interest to protect households and selected vulnerable groups against extremely high energy prices, which have increased globally for several reasons such as the post-coronavirus revival of global economy, followed by an increase in energy demand. However, a deal on cheap electricity between the state and the country's major electricity producer, Slovenské Elektrárne (SE), supposed to shield people from high prices, has not been signed to date. The firm's shareholders rejected the deal in December, reportedly because of the temporary state-imposed extra taxation.

Negotiations are ongoing, the Economy Ministry has said.

Based on the memorandum from last February, SE should supply households with as much electricity as 6.15 TWh at €61.20/MWh in 2023 and the following year.

The price of electricity as a commodity makes up half of a customer's electricity bill in Slovakia.

Just weeks before the end of last year, the government also adopted price caps on the tariffs and fees that make up the final electricity price for households and selected vulnerable groups, such as care homes and people living in social or rental homes. Though some of them, like the tariff for system services (TSS) and the tariff for system operation (TPS), increased by 60 per cent. According to ÚRSO, households and the mentioned groups will not see this in their bills in any significant way.

Government regulations with regard to the extraordinary subsidy measures supercede ÚRSO's decisions on regulated prices.

Still, the final electricity price for households will increase on average by 2.5 per cent this year compared to 2022, depending on the electricity distributor and a household's electricity consumption.

The price for care homes or blocks of flats with their own boiler rooms should be, more or less, the same as in the case of households, the regulator said.

While the government has taken major steps to protect households and selected vulnerable groups against high energy bills, it did not make its aid contingent on making people save energy, a move taken by other countries. The Economy Ministry only launched a campaign in December to explain why it is good to consume less energy.

On January 9, the ministry announced that gas consumption decreased by 15 per cent in November compared to the five-year average. The trend observed in recent months, nonetheless, does not match the Eurostat figures, the Index magazine wrote.

Also, according to Eurostat, Slovak households spend 31 per cent of their total expenditure on housing and utility bills, the highest share among all EU member states.

Households and vulnerable groups will also pay more for gas in 2023, by almost 16 per cent. The final price depends on what they use the gas for.

Gas prices for households have increased only slightly since 2015, while other EU member states have seen an increase by dozens of per cent.

Recently, the regulator pointed out the increase would be by 200 per cent if the government did not act given the surging gas prices on the markets.

ÚRSO has also warned that the maximum regulated heat prices in 2023 are affected by a dramatic increase in the market prices of fuels and energy needed for heat production.

Heger's government intervened in this event as well.

Several days before Christmas the government updated its early December regulation regarding the limits on heat prices for people living in flats. Instead of a 15-percent increase, the price of heat should increase by no more than €20/MWh including VAT compared to 2022. At the same time, the final price cannot exceed €199/MWh including VAT.

The individual increase in the final heat price for a household depends on the heat price the household paid in 2022.

The state will compensate heating plants for additional costs caused by the extraordinary measures with €400 million throughout the year (while other big firms and smaller businesses, including doctors' offices and restaurants, are yet to receive details about how much funds the government will spend to give them a hand during the energy crisis).

Without the intervention, heat prices would increase by 112 per cent on average, with major differences in regions ranging from 2 per cent to 243 per cent. The differences stem from the type and the cost of fuel needed to produce heat, as well as from the volume of produced and delivered heat, among other things.

How much more households will pay for heat depends on consumption, the energy efficiency of home buildings, as well as the calculation of heat costs split among members of communities living in blocks of flats.

The regulator also emphasised that it is not within its competence to decide on the amount of advance payments for heat, which may not yet take the recent extraordinary measures into consideration and may be extremely high. In this case, it is heat suppliers that will have to redo and send new invoices to customers.

"Every citizen will pay the same price for heat as the government approved last year," PM Heger wrote in a post on Facebook.

A Slovak household living in a flat on average consumed 6.4 MWh of heat in 2021, according to ÚRSO's annual report, for which it paid €586. The average heat price in 2021 stood at €75.3/MWh.

The recent extraordinary measures exclude other consumers who also receive heat from central heating systems, often from heating plants in major cities. These include plants like Bratislavská Teplárenská, Tepláreň Košice or Žilinská Teplárenská.

The price for these consumers will be decided by the regulator upon requests from dozens of heat distributors around the country.