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Thursday, July 25, 2024

Slovenia is facing rising energy prices. Who is responsible for raising prices?

By: Vida Kocjan

Anton R. from Ljubljana had to sit down when he received a heating bill a few days ago. So far, he has paid 70 euros with his family in the winter, this time the number on the payment slip was 153 euros. He was furious. It was no different in Ptuj: the man from Ptuj paid 107 euros in the winter, this time he received a payment slip in the amount of 232 euros. The increase is similar to the one in Ljubljana.

Mr. Anton and Mr. from Ptuj are not the only ones. In Slovenia, people are receiving payment slips that are significantly higher than the ones they were used to. Utilities have risen in price, including food and petrol, but the price has jumped the most in heating, especially in urban centres, e.g., in Ljubljana, Ptuj, Jesenice. What happened?

“Green money” costs a lot

Already in the last decade, the European Union has started a madness called the ‘green agreement. Under this agreement, countries will become carbon-free companies within a certain period, which means they will abandon fossil fuels (coal or oil). This requires huge amounts of money. The European Union has already spent more than a trillion euros, with another 1.8 trillion euros planned for 2021 to 2027. Since there is no such money, they must print it “from scratch”, that is, this money has no basis in reality. This money is affectionately called “green money”.

Any larger amount of money in the market sooner or later causes inflation. What we are seeing today (higher food and service prices) is a direct consequence of this. It is similar with paper (newspapers and books). Because ecologists (read: eco-terrorists) with governments have decided to overdo it by preserving forests (paper is obtained from wood), there is a shortage of paper in the market, which means higher prices. This is all the truer for energy sources.

It is the fault of the municipalities, not the government

Obtaining energy from renewable energy sources (sun, wind) is very expensive. But because elites persist, countries must tax fossil fuels and give money for sustainable development. It happens that wind farms are set up in places where the wind blows, and solar power plants where there are not many sunny days a year. All with the aim of drawing funds for energy from renewable sources. Let it cost as much as it must.

The root cause of heating prices is described. However, these increases are not decided by the government, but by individual public utility companies owned by municipalities. These are mainly large urban municipalities ruled by leftists.

How do they advocate price increases in municipalities?

From Ptuj we were told that the variable part of the price of thermal energy, which represents the largest share, has doubled since January 1st, 2022. As a reason, they state that the price of natural gas as the main energy source is five times higher than last year. The rise in energy prices on the world market is to blame, they add. They also state that the price of electricity has increased 2.5 times. “The price of heat, which we buy from the company Top energija for cogeneration, is also higher this year compared to last year. These are the elements that make up the variable part of the price and this part of the price is the one that raises the price of heating in Ptuj to the sky,” they wrote, adding: “We understand the plight and bad mood of citizens, but the situation on the energy market surprised everyone.” They also explained that they “remain in the project of renovating the boiler room, in which they want to replace the existing natural gas boilers with a wood biomass boiler and thus avoid dependence on fluctuations in energy prices on the market.” The latter would make heating cheaper.

Agency: The final price depends on the individual municipality

The Energy Agency explains that part of the price consists of a fixed and a variable part. The fixed part of the price of heat differs between district heating systems in individual cities mainly due to the technical characteristics of the network, the age of the network and the size of the customers connected to the network. The variable part of the price differs mainly due to the prices of incoming energy sources. This means, however, that the final price really depends a lot on the individual municipalities in charge of the network. The variable part is related to raw material prices.

How is this controlled in the Energy Agency? The process is longer, but the point is that heat distributors must obtain the agency’s consent to the starting price of heat for each distribution system. The base price of heat is confirmed by the agency when a new taxpayer is created if the existing taxpayer undergoes major technological changes or other changes that significantly affect the planned quantities of distributed heat or planned billing capacity or with other significant changes.

In the period after the confirmed starting price, heat distributors or regulated heat producers may, due to a change in eligible costs under certain conditions, claim a change in the variable or fixed part of the heat price without the consent of the agency.

Specifically, this means that due to a change in variable costs (energy), the heat distributor or regulated heat producer may claim a price change without the consent of the agency. The latter must be notified of the change three days before the entry into force or no later than the third working day after the entry into force of the price change.

So why is heating so expensive in some cities and how much is it subjective? They answer that in regulating heat prices, the agency cannot influence the company’s business policy when buying energy. The agency also draws attention to rising energy prices and emission coupons in wholesale markets, which are reflected in heat prices.

In Slovenia, almost 70 percent of all household heat consumers connected to distribution systems in Slovenia are supplied from district heating systems. “As a rule, the price of heat increased the most in those municipalities where natural gas or coal is used as primary energy for heat production, mainly due to the really high trend of increasing natural gas prices in wholesale markets, and in the case of coal, due to the large trend of increasing the prices of emission coupons,” they explained.

Ministry: Managers are responsible

The Ministry of Infrastructure states that the EU has gradually established a single market for natural gas, and since 2004 all major and since 2007 even all smaller gas consumers have been able to choose a supplier and conclude a supply contract with it. The single gas market has led to a gradual levelling of natural gas prices in the EU, which for our environment at the time meant a gradual reduction in prices for end customers. A special jump in the reduction of prices occurred in 2012, when a domestic provider entered the gas market in Slovenia, which had not yet had its customers. Prices fell by about 30 percent in two weeks.

However, since Slovenia does not have its own gas production that could be delivered to the gas network, suppliers must buy gas entirely at gas trading hubs in Europe. Gas is purchased every day for the following periods: whole year, season, month, or day.

The EU natural gas market responds to supply and demand in line with the mechanisms of a functioning gas market. Thus, the price of gas due to the covid-19 pandemic in 2020 and early 2021, when gas demand was very low, was at historically low values (daily and average annual prices for next year around 16 EUR/MWh). However, when the demand for gas increased in the second half of 2021 and the supply did not follow for various reasons, the price of gas in November 2021 jumped like never before and reached historical values (daily price up to 180 EUR/MWh and average price for future year around 90 EUR/MWh).

At the same time, they explained that Slovenian suppliers are currently (in January) offering gas for such individual customers in Slovenia at a price between 27 and 70 EUR/MWh, and some also at 125 EUR/MWh.

Therefore, those suppliers who have leased enough gas at a still low price for 2022 can currently offer a lower price, while the rest have already raised the price of gas or will continue to do so.

With the sharp rise (or possible fall) in gas prices, the time of purchase is therefore extremely important, which has been extremely strong in the current heating season.

The Ministry adds that gas customers or managers on their behalf at major collection points have an additional responsibility that they also ensure the right time to buy gas.

Given the situation, quite a few major gas consumers probably missed the right time to buy, despite the obvious trends of rising gas prices over the year or hoped that its prices would fall in the last part of the year, which did not happen. It is therefore also the responsibility of the operators. These are management companies owned by individual municipalities.

GEN Energija and GEN-I

But that is not all. The bills are also suffocating people due to the inefficient organisation of GEN Energija, also in connection with GEN-I, as it has been revealed in recent days. The Court of Audit called on GEN Energija to consider whether it makes sense to leave its own sales function to GEN-I.

Namely, it is about that Gen Energija, which is state-owned, does not have its own marketing department for energy coming from the Krško Nuclear Power Plant, but has a contract with GEN-I for this purpose. According to the Court of Audit, 14 million euros were lost in the audit of some transactions, in which GEN-I was also involved.

The Minister of Infrastructure, Jernej Vrtovec, acted on all these revelations and demanded an audit of GEN-I’s operations. At that time, the media even received information from Slovenian energy experts that at least 500 million euros had disappeared in GEN-I and related companies. Minister Vrtovec then estimated that it was 17 million euros. The Court of Audit’s audit also states that contractual prices in purchase and sale contracts do not ensure traceability or transparency in their determination.

Prices and how will it be in the future?

At the CEGH gas hub in Austria, from where most gas comes to Slovenia, gas prices in 2021 for supply in 2022 ranged from 16 EUR/MWh in the first half of 2021 to 139 EUR/MWh in November and around 90 EUR/MWh at the end of December 2021. Individual large customers concluded contracts at daily prices or monthly contracts. Currently, the daily and monthly gas prices at CEGH are around 75 EUR/MWh. And how will it be in the future? It is difficult to estimate what gas price fluctuations will be in the European market in the future, but we can certainly expect on average higher prices than the historically low levels in 2020 and 2021, according to the Ministry of Infrastructure.

If they acted responsibly and on time, many things could be different today

Building managers also played an important role in today’s prices.

Many managers (who approached bidding responsibly and in a timely manner) also managed to secure favourable offers and a favourable price for serviced households through shared boilers for the whole of 2022. Those managers who did not do so were exposed to market developments and consequently the purchase of gas at higher prices in the last quarter of 2021. The same approach as for shared boilers also applies to larger or smaller district heating systems that use natural gas as an energy source in boilers. The direction pursued by the new European Gas Directive (draft published on December 15th, 2021) is active and responsible customers, which in the case of shared boilers is especially true for managers of multi-apartment buildings or boilers, who will continue to have to actively follow the possibilities of optimal and affordable gas supply and in this way to justify the trust of residents, shown by the management contract.

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