Minister sends heating season energy price compensation scheme for approval

Gas stove.
Gas stove. Source: John-Mark Smith / Unsplash

Minister of Economic Affairs and Infrastructure Riina Sikkut (SDE) on Thursday sent a regulation which sets the conditions for energy subsidies that will come into effect in the fall to the finance ministry, for approval.

The bill's provisions allow for the state to compensate household consumers for the price of energy consumed from October 1 to March 31, via three means, relating to the three main categories of energy consumption: Electricity, natural gas and district heating (centrally controlled hot water piped into many apartment buildings, for heating purposes, while the water itself is often heated via natural gas, or sometimes as a by-product of power stations' activity.

The compensation is to be applied automatically, as follows.

First, the domestic electricity consumers will be compensated based on the monthly average price of electricity, exclusive of VAT (which is the price quoted on the Nord Pool exchange – ed.), beyond the level of €80 per MWh, up to a compensation ceiling of €50 per MWh. 

So, for example, if electricity costs €110 per MWh as a monthly average, the consumer would pay €80 per MWh and the compensation (of €30) would cover the rest.

On the other hand, if a consumer purchases electricity at an average monthly price of €150 per MWh, after compensation is applied, the price paid by the consumer would be €100 per MWh (ie. first €80 is compensation-free, followed by the €50 per MWh maximum compensation = €130, while the consumer pays the remaining €20 beyond that ceiling, in other words €80 + €20 = €100).

Second, the state compensates the domestic consumer of natural gas at 80 percent of that component of the average monthly gas price that exceeds €80 per MWh, again exclusive of VAT. 

At the same time, compensation is applied up to a maximum consumption ceiling of 2.6 MWh, which has been stated as the monthly gas consumption of the average private household. 

For example, if during the course of a month the consumer spends an average of €230 per MWh (exclusive of VAT) on natural gas at a consumption volume of 2.6 MWh, once the compensation is applied, the price paid by the consumer would be €110 per MWh (ie. €230 - €80 = €150 x 0.8 = €120 compensation paid by the state; €230 - €120 = €110 paid by the consumer).

Third, domestic consumers of district heating will also be compensated to 80 percent of the cost of heating exceeding the level of €80 per MWh (exclusive of VAT), in much the same way as natural gas consumption is compensated (see above).

For instance, if district heating costs €97.15 per MWh as a monthly average, it would now cost €83.43 per MWh to the consumer, once compensation is applied (€97.15 - €80 = €17.15 x 0.8 comes to €13.72 state compensation. €97.15 - €13.72 = €83.43, billed to the consumer).

(Please note all figures above are exclusive of VAT, while the scheme has still to be approved by the Ministry of Finance).

Those household consumers who do not receive compensation automatically through energy sellers will be compensated on the basis of a separate application, which must be submitted to the Center for Environmental Investments (Keskkonnainvesteeringute Keskus). 

Such cases can arise when, for example, a separate business association, non-profit organization or cooperative mediates energy supply to home consumers in a housing development, which can be the case in smaller co-owned apartment buildings where apartment associations have not yet been established and energy consumption is organized via one apartment owner.

With the help of subsidies, the average natural gas consumer's expenses will be cut by about 50 percent, for electricity by about 21 percent, and for district heating, using the example of the largest district heating area, by 14 percent.

Minister Sikkut said: "Both in Estonia and in other parts of Europe, energy prices have remained high, and unfortunately no quick relief is expected here."

"As a result, the state supports domestic consumers in order to guarantee the confidence and livelihoods of Estonian residents in the difficult, inflationary conditions. We will also come up with energy subsidies this heating season, which will reduce consumption bills starting from October. In this case, consumers will not have to apply for benefits themselves, but these are automatically deducted from the bills," Sikkut went on.

The right time for owners of non-standard energy contracts to review their contracts is right now, Sikkut added, and, if necessary, to make amendments. For example, a terraced row of houses (Ridamaja) has a contract guaranteeing the availability of energy for everyone in the name of one person, it would be sensible to rearrange that separately for each consumer, the minister said.

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Editor: Andrew Whyte

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