Taavi Aas: Universal electricity service a failed experiment

Taavi Aas.
Taavi Aas. Source: Ken Mürk/ERR

Estonia's universal electricity service has failed on three fronts, former economy minister, Center Party MP Taavi Aas writes.

First, the universal service was supposed to be a cheaper option. It is not. The market price [of electricity] has been cheaper than the universal service price since Christmas. Prior to the holidays, the price difference was so modest that those with the means to consume flexibly still ended up benefiting from the market price.

Secondly, the universal service was supposed to give consumers certainty, while this has also not happened courtesy of issue number one (the price). On the contrary, consumers are even more confused than before. Especially those who decided to switch to the universal service. Switching to the universal service avoids a contractual penalty once, but what should people do now when the market price has long been cheaper than the guaranteed alternative?

Switch back to the market price? But what if it starts edging up again? Unfortunately, we have arrived in a situation where the universal service and its high price cause nothing but problems for the consumer. The only one to have gained is [national energy company] Eesti Energia as the universal service includes a guaranteed profit component for the producer. The company would not have turned a comparable profit on the market.

Thirdly, the universal service is useless for companies. It is out of reach for major businesses, while it holds the same problems for micro and small companies than it does for home consumers. The same goes for local governments. Pursuant to public procurement rules, local governments also cannot switch to the universal service, with those making use of local services drawing the short straw once more.

What should have been done instead? We first proposed laying down a price of electricity cap last spring. A price ceiling would have helped keep inflation and prices in check. The fact that the market price has come down suggests the measure would not have been too much for the state budget, while both home consumers and businesses would have had certainty.

In truth, the shortcomings of the universal service are just one piece of the puzzle. The government's passivity in supporting enterprise has led us to a situation where registered unemployment had risen to 53,500 people (51,178 in December) by January 15. Estonia's entrepreneurship minister has suggested that no new measures will be taken before unemployment reaches 70,000. I suppose this means we will just have to wait.

We find another good basis for comparison when we look at support states have made available to companies. While this amounts to 7.4 percent of GDP in Germany, it is less than 1 percent in Estonia. The indicator is 3.2 percent for Latvia and 6.6 percent in Lithuania.

The government should take responsibility for turning voters into serfs (as giving up the universal service could prove just as costly as retaining it), facilitating continued price advance, thereby eroding purchasing power, as well as undermining the private sector's competitive ability.


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Editor: Kaupo Meiel, Marcus Turovski

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