Power subsidy model is pricy
Maintenance of the adjustment clause in electricity bills would have been much less costly
The new pricing model in electricity introduced by law as of last August, has proven to bring much higher costs than the dreaded adjustment clause originally imposed on electricity bills.
Under combined political and social pressure, caused by continuous electricity price hikes, the Finance Ministry hastily replaced the demonized adjustment clause with kilowatt-hour pricing based on a forecast of the next month’s wholesale cost formation, 10 days in advance. The first conclusions from the almost four months of implementation of this new model are that it led to the desired final political result, but with additional costs for the state and consumers, as well as significant risks for suppliers.
While prices in the wholesale market for opportunistic reasons have followed a continuous path of de-escalation since the new pricing formula was decided and implemented, the monthly rates providers announce are systematically above the total cost (including profit margins and operating expenses). This is because providers, who initially expressed reservations that the new “casino model,” as they describe it, would lead to increases, incorporate the most extreme scenarios for the price development in the wholesale market in order to avoid the high risk which entails forecasting amid intense market volatility.
The very large increases brought about by the removal of the adjustment clause were not immediately visible to consumers, since the new pricing model was combined with generous subsidies to keep tariffs at tolerable levels. The burden was borne by the Energy Transition Fund and, to a lesser extent, the state budget, which had to pay increased subsidies of more than 1 billion euros for September and October alone to finally cover the providers’ risk, which would not have existed with the adjustment clause.
The Energy Ministry is now trying to correct that through a legislative regulation it submitted last week for the taxation of excess revenues in the supply market.
