How the extension of the electricity price freeze in the second half of 2024 will affect energy companies

30 April 2024 | Knowledge, News

In the wake of the energy crisis which resulted in high electricity prices, the European Union has adopted extraordinary instruments to intervene in the market model of electricity trading in order to protect vulnerable consumers.[1] The national electricity price freeze regulations in force until the end of June this year are to be extended until the end of 2024.[2]

The draft is controversial because it is being proceeded without public consultation and because the use of regulated electricity prices has no basis in EU law. According to the new electricity market directive,[3] regulated electricity prices will only be permitted when of a temporary nature. Since the aim of the draft is to protect vulnerable consumers from the effects of the energy crisis, the application of regulated electricity prices will require an EU Council decision. In addition, there are a number of doubts about the proposed solutions, which could lead to the draft being amended or even abandoned.

We look at what could be the most significant changes for energy companies.

Electricity price levels in the second half of 2024

The amendment will extend the application of electricity price caps to eligible customers. From 1 July 2024, the maximum price for eligible customers will:

  • Be PLN 500/MWh for households (instead of PLN 412/MWh as in the first half of the year) if the electricity consumption limit is not exceeded,[4] which means a 22% increase in the price of electricity
  • Remain frozen at PLN 693/MWh for SMEs[5] and local authorities[6]

In practice, this means that the prices resulting from the adopted tariffs will not be applied to eligible customers.

Compensation for electricity traders and distributors

Until the end of 2024, electricity traders and distributors (eligible entities[7]) will be entitled to compensation for the application of the maximum electricity price.

When a contract with a fixed price guarantee is concluded with an eligible entity, the reference price determining the amount of compensation will be modified. The compensation will be the product of the amount of electricity consumed in a given month and the difference between the reference price and the maximum price for each consumption point.

In addition, the electricity price will not be permitted to be higher than:

  • The price applicable in settlements with that consumption point on 16 August 2023, or
  • The volume-weighted average electricity price from the completed settlement period covering 16 August 2023 for contracts with a fixed price guarantee of the same type, concluded with eligible customers, applied by the eligible entity – if the contract was concluded after 16 August 2023 (instead of the to-date average electricity price for contracts with a fixed price guarantee of the same type, concluded with eligible customers, applied by the eligible entity on 16 August 2023 – if the contract was concluded after 16 August 2023)

The deadline for submitting compensation applications for 2023 will be extended to 31 October 2024 (instead of 30 June this year, as previously).

Deadline for submitting compensation applications for 2024

  • H1 (for the period from 1 January to 30 June 2024) – 31 October 2024 to 30 April 2025.
  • H2 (for the period from 1 July 2024 to 31 December 2024) – 1 May 2025 to 30 September 2025.

A possibility to correct the compensation application will also be introduced. If the application contains formal deficiencies, calculation errors or raises reasonable doubt as to its factual accuracy, the Settlement Administrator will request the eligible entity to make corrections within 21 days of receiving the request.

Tariff changes

Within 7 days of the entry into force of the Act, electricity traders with an approved and binding electricity tariff for 2024 will be obliged to apply to the President of the Energy Regulatory Office (URE) for an amendment to this tariff for eligible customers with a validity period of no less than 31 December 2025.

The regulation allowing eligible entities to apply to the URE President for a change in the 2024 tariff due to a change in the external conditions of the entity’s business activities that cause a significant decrease in electricity prices resulting from the tariffs approved for 2024 or part of that year is to be repealed.

Discount for low electricity consumption

If an eligible customer’s energy consumption at a consumption point in 2023 was no more than 90% of that customer’s average annual electricity consumption from 1 January 2018 to 31 December 2022, the eligible entity, if an energy seller, regardless of whether it still has an electricity sales contract or a comprehensive contract with that customer, will apply a discount to that customer in 2024.

The application of the discount will result in a reduction in the amount due on the next or subsequent electricity bills.

In the case of eligible customers who are renewable energy prosumers,[8] electricity consumption should be understood as the consumption of electricity from the grid prior to a summary balance. The amount of the discount shall be equal to 10% of the total settlement amount of the eligible customer’s purchases (instead of sales, as before) of electricity in 2023.

The Act is scheduled to enter into force on the day following its publication.

Any questions? Contact

Milena Kazanowska-Kędzierska

Aleksandra Pinkas  

 

[1] Council Regulation (EU) 2022/1854 of 6 October 2022 on an emergency intervention to address high electricity prices (OJ L 2022, item 261).

[2] By means of the adoption of the currently pending draft act on energy vouchers and on the amendment of certain other acts [UD44].

[3] European Parliament legislative resolution of 11 April 2024 on the proposal for a directive of the European Parliament and of the Council amending Directives (EU) 2018/2001 and (EU) 2019/944 as regards improving the Union’s electricity market design (COM(2023)0148 – C9-0038/2024 – 2023/0077B(COD)) [the Directive has been adopted by the European Parliament].

[4] Pursuant to Article 3(1) of the Act of 7 October 2022 on special solutions for the protection of electricity consumers in 2023 and 2024 in connection with the situation on the electricity market (Journal of Laws of 2023, item 1704, as amended) (‘Special Solutions Act’), the limit for electricity consumption entitling to the application of the maximum price of PLN 412 / MWh (the amount of the price results from the validity of this maximum price for half a year) is 1.5 MWh (due to the validity of the relevant solutions for half a year). In case of exceeding this limit, customers are protected by the maximum electricity price of PLN 693/MWh.

[5] The full list of entities eligible for the electricity price cap of PLN 500/MWh is set out in Article 2(1) of the Special Solutions Act.

[6] The full list of entities eligible for the electricity price cap of PLN 693/MWh is set out in Article 2(2) (b)-(f) of the Act of 27 October 2022 on emergency measures to limit the level of electricity prices and support for certain consumers in 2023 and 2024 (Journal of Laws of 2024, item 190).

[7] According to Article 2(2) of the Special Solutions Act.

[8] Pursuant to Article 2(27a) of the Renewable Energy Sources Act of 20 February 2015 (Journal of Laws of 2023, item 1436, as amended), a renewable energy prosumer is an end-user who generates electricity from renewable energy sources exclusively for their own use in a micro-installation, provided that, in the case of an end-user who is not a household electricity consumer, this is not the core economic activity.

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Contact us:

Wojciech Wrochna, LL.M.

Wojciech Wrochna, LL.M.

Partner, Head of Energy, Infrastructure & Environment Practices Group

+48 734 189 743

w.wrochna@kochanski.pl