Below, we bring you questions from the interview for Aktuálně.cz and answers from our experts from GT Advisory.

Can you briefly describe exactly how the energy price cap works? 

The government has set a cap on the price customers will pay for energy. The price above this limit will be paid by the state. That, in brutal brevity, is all.  

One of the goals is for the largest producers to supply part of their production to the state at a lower than market price, of course still with a reasonable margin. In this context, it can be very problematic that the big players have electricity for 2023 contracted in most cases. It is therefore not clear, what amount of electricity we are talking about under these conditions. 

Is the cap set well - as for the amounts, in your opinion? 

This is a political decision, the government will say yes, the opposition will say no. Plus, “after the battle, everyone will be a general” (they will claim they knew better). As far as I’m concerned, the amount is fine, although from my point of view it is not as important as the signal it sends. The problem with energy prices will be long-term, especially for the low-income population, so it makes sense to reassure them that the government will not leave them in the lurch. At the same time, further work is needed on alternative support schemes. 

Won’t it give people the feeling that the “sweater” is coming to an end and there is no need to save in winter? 

I believe not. Even the capped price will have a noticeable impact on people’s wallets and lead to more economical behaviour. Maybe even more than the spot market prices a few weeks ago. It is questionable, whether or not the consumer could even imagine the actual increase in costs. When the annual settlement for last year arrives, it will come as a negative surprise to many people. 

Doesn’t that put spot prices at an advantage now? (In the sense of “It can’t cost me that much more, while it can become cheaper”) 

This is a matter of regulation of the market and therefore of specific implementation measures. There is undoubtedly a risk that government intervention may mean a windfall for some traders in certain circumstances. 

Should businesses also have a cap on energy?

Again, a purely political decision. In view of the drastic increase in energy prices, specific to Europe, I would consider some form of support an appropriate tool to stabilize our companies, which are now in shock.  In general, it can be said that predictability of prices is crucial for the formation of the companies’ financial and economic strategy. Capping energy prices could help them significantly in this regard. 

How will this affect the national debt? 

English-speakers say “no free lunch”, meaning nothing is free. The measures will certainly have an impact on the budget. It is not possible to comment on the government’s assumption of CZK 130 billion well enough. It is not clear how the entire turbulent year 2022 will be reflected in the budget. However! It is necessary to put the number, or in a worse case its multiple, in the appropriate context.  
The legitimate (and main) question is, if the option of “not intervening at all”, which entails plant closures, layoffs, tax cuts, welfare increases, and so on, would not be significantly more expensive. 

Author: Jiří Dvořák