Minister: Universal electricity bills dearer for firms than households

Kristjan Järvan.
Kristjan Järvan. Source: Ken Mürk/ERR

Partners of the coalition are soon to start discussing the proposals from the Ministry of Economy and Communications to support companies. Among these are the expansion of universal electricity service ,and new tax rates. Minister of IT and Foreign Trade Kristjan Järvan (Isamaa) told ERR, in an interview which follows, that if the proposed universal electricity service for domestic customers were to be extended to companies, it may prove more expensive for them than for households.

Has the Ministry of Economy and Communications prepared its proposals as of now, on how the energy crisis could be alleviated for companies?

Yes, this toolbox is ready. We also got the private sector involved. Naturally, a desire to implement the most expensive measures, and on the largest scale, came from the private sector.

However, the Minister of Economy and Infrastructure takes part in energy ministers' meetings, whence we can get a clearer picture of what measures are planned at EU level. In the new week, we will also be discussing, at the coalition council, measures concerning energy subsidies for companies

Since these volumes are so large, who exactly might be supported and how, is still a decision at the level of politicians.

How much money is the state ready to invest in order to lower energy prices to companies?

Although there are also such approaches where you first state the amount of money and then see what happens with it, I think that this is actually not best practice. If we're just blowing a very, very large amount of money ineffectively, this is not in the taxpayer's interest, and it's not in the business' interest.

A common Isamaa proposal has been that the universal service of electricity should be extended to companies too. Is this now among the proposals from the Ministry of Economy and Communications?

It's in there. If we are talking about companies with up to 10 or 50 employees, it is actually the fastest, and also the most sustainable, way to help entrepreneurs. It is also fully-compliant with EU law.

At the present point in time, it is important not only that these measures are well-targeted, but that they are also timely. If we spend time and resources on targeting this measure very precisely, and as a result we are late in preparing for winter, then in fact, again, the entrepreneur only loses out as a result.

Do I understand things correctly that companies with more than 50 employees are not allowed to provide this universal service under the EU state aid rules?

State aid permission must be requested, without a doubt. With respect to "micro" and smaller businesses, the permission is, as it were, already known in advance - that it will definitely come. We also know that other countries have received these intervention permits in an accelerated manner, in order to help very large companies.

Actually, I am comparatively certain that even today, when the European Commission can see the situation that prevails in the market, all these measures are still very justified, and especially universal service style measures which do not create an unequal situation between companies.

The current universal service draft states that when calculating price, Eesti Energia's generators which have the lowest cost are taken into account. I understand that via this measure the intention was to link the business activity of purchasing from the Nord Pool exchange – then selling to customers via the Eesti Energia production portfolio, at least in terms of price calculation. If the same path continues to be followed, if companies are also included in the measure, these blocks with the lowest cost will not be enough to power the companies.

There is actually quite a lot of spare capacity. In fact, I agree that if the majority of entrepreneurs would still take advantage of this universal service, with pricing according to the cheapest blocks, then there will be a change. Whether to take the average of all or to make further clarifications needs considering.

We have clearly prioritized home consumers. Approximately two-thirds of companies are on fixed electricity contracts. In fact, they have more competence to prevent such problems. This naturally raises the question of whether we should give them electricity as cheaply as a home consumer, or take into account that entrepreneurs are actually financially stronger, and in their case the price of universal service could be higher than for home consumers.

This is a question that is reasonable to discuss in order to keep our energy companies and that all companies still have the motivation to operate in the market and to solve this situation.

Perhaps two different universal service prices are viable - one for companies, the other for home consumers?

It is a point for political decision. But really, the question is that the home consumer, or home consumer contracts, we can see that it is a priority, that it is justified to protect him more with the help of the law. If the decision comes, it is legally justified to have a different price for private consumers and companies.

One very important measure that is under discussion related to all kinds of taxes and excises. Are these also affected by the proposals of the Ministry of Economy and Communications?

It looked as if this was going to go well, since, essentially, it has been agreed in the coalition agreement that we will not alter taxes. This may change on a case-by-case basis, but I rather think that other tools to support businesses are more likely.

But is the ministry going to experiment to reduce these inputs as well?

Yes, without a doubt we will look at all the means possible, and then at the political level we will also make decisions.

What energy types would it make the most sense to reduce the VAT or excise tax inputs on?

We have taken the approach that we will treat energy sources relatively equally. But without a doubt today, the focus is on natural gas. We don't really have any gas production in Estonia ourselves; we have some biogas producers, but in now way can we cover market demand. Some production companies cannot give up natural gas either, while the food industry is principally in focus here.

The ministry has a drawer full of letters from various companies, all of whom would think that they could use "blue" fuel, i.e. fuel with a lower excise duty. Perhaps at the port, maybe for heating buildings or in construction equipment, and so on.

And I think this is a valid proposition. We will undoubtedly discuss this with our coalition partners too.

How long of a list of those who might be able to use this "blue" fuel will you be taking to the government?

This of course depends on how much detail we go into. One could simply say that it consists of entrepreneurs and home consumers, and then the whole list has been completed. However, of course there are also priority target groups.

What are these priority groups?

In terms of production reliability, these natural gas aspects still carry the biggest question mark. Parts of the food industry have still managed to switch from gas to oil, so there may be that spike, to avoid companies having to close their doors.

The whole of Europe is currently thinking about how return CO2 quota money that somehow fell into the hands of the state, to the consumer. Any ideas on how to carry this out?

All the measures we have been talking about here today are not plucked out of thin air either. These are the measures whereby the CO2 money is returned At EU level, whether today's CO2 quota system justifies itself is under discussion.

At the meeting of the EU energy ministers, there was one very important thing that Estonia also supports, that is namely the so-called decoupling of the price of natural gas from the price of electricity. Have you also understood Estonia's point of view, that if suppliers buy gas at one price and sell electricity at a higher price, where would the difference derive from?

Instead, we are looking at how to decouple the remaining electricity generation from natural gas plant generation, and to either tax the profits in the meantime or find some other technical measure. This really is complicated. In the same way, this profit is not simply distributed to electricity producers, since they have applied financial instruments to spread their risks both among electricity sellers and, for example, companies.

If a company signed a very long-term contract, several years ago, it gets electricity at €30 per MWh, while today the Nord Pool stock market price is ten times more than that, so these same fixed contracts actually run at a loss for electricity producers. So essentially the rest of the consumers are paying for it. There are still many facets here.

With Estonia's position, there was no such taxation of super-earners or on super-profits, yet this was in the European Commission proposals. Looking around the Estonian market, can you see areas where money could be handed back to the people?

I don't go around with that attitude. Instead, my concern is still the transparency of the Nord Pool stock exchange, and these stock exchange rules in general. Entrepreneurs can't be blamed for growing, for prudently taking risks and profiting from them.

But, of course, at some point, ethical questions shift. If some are still in the dark and the others are expecting extremely high profits, it is wise to intervene and balance these situations.

In the commission's discussions, Estonia supports limiting consumption, in a manner similar to the decision on natural gas. Except that unlike natural gas consumption, Estonia's electricity consumption has not significantly decreased due to the high prices. Where should Estonia start if we can or set ourselves a goal to reduce electricity consumption by, for example, one-tenth or one-fifth? I'm talking about quick ways, not about insulating buildings.

I have reservations about the ability of the private sector, especially the household consumer, to further reduce their consumption. It is certainly possible in some ways, but today the home consumer makes a lot of effort and even knows that electricity is expensive.

On the business side, where the majority of electricity consumption also derives from, measures are under discussion where indeed we would support large consumers not to consume at the state level. 

The reason for this is very simple. The infamous €4,000 hourly price, the reduction of a few megawatts was enough to actually reduce the price by a factor of five.

Figuratively speaking, one can say that one factory reduces its production and absolutely everyone benefits from it, and that consumption management measures in this regard are certainly interesting.

Do you have someone in your ministry's building working with such a measure and trying to note it down?

Yes, only actual people are working in our building, especially in the energy department.

What is the goal, when the November or December bills arrive, with the support of the state including, how much or by what percentage should these bills be smaller for firms?

As small as possible, there can be no other goal today. Of course, we have to weigh all the other policy decisions. The positive message is that two-thirds of the companies have still fixed their electricity contract. How much we can offer a cheaper price from these fixed electricity contracts is still somewhat of a big question mark.

Kristjan Järvan was talking to Madis Hindre.


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Editor: Andrew Whyte

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