Power bill support quandary

The state’s permanent electricity subsidy mechanism is being launched under particularly difficult circumstances, as the Finance Ministry will need to allocate more than 650 million euros for just one month to keep down the power costs of some 5 million households and 1 million professionals in July.

The exact amount of this unforeseen expense will be announced within the next few days by the ministries of Finance and Energy, and will be covered by the Energy Transition Fund and the state budget.

From the outset, the electricity subsidy mechanism will have a deficit that may even exceed €150 million, due to the jump in international natural gas rates above €140 per megawatt-hour, as well as the subsequent increase in the wholesale price of electricity, which reached €350/MWh on July 1.

Losses at the fiscal level are now certain for the first month of scheme’s implementation, as all calculations had been made with the assumption that the gas rate would not exceed €100/MWh, while the price of electricity would be €225 euros/MWh.

Given the complete uncertainty regarding the course of natural gas rates – the possibility of a complete interruption of the flow of Russian gas is still alive, which would have completely unpredictable consequences on rates at the Amsterdam stock exchange of gas – the Finance Ministry is now looking for additional fiscal space to finance the mechanism.

There are two alternative scenarios in the event that prices are maintained at current levels for a long time: Either additional fiscal space is found, or subsidies to households and businesses are held back, which means an increase in the burden of electricity bills.

For the time being, the government is choosing to act on the basis of the original plan drawn up in May, when the price of natural gas was hovering around €85/MWh and the rate of electricity around €220-230/MWh. Within the next few days, the separate subsidy prices per account category will be announced.