Lubomr Lzal: The price of electricity should be determined by the country’s energy mix

Germany will have to prioritize security of supply over climate protection. If the price of electricity is determined by the power station, it makes no sense to insist on emission permits or electric cars. We spoke to economist Lubomr Lzal about energy development after the Russian invasion of Ukraine.

German Economy and Climate Protection Minister Robert Habeck admitted that it was foolish of Germany to have developed a strong relationship with natural gas supplies from Russia. He then negotiated an LNG supply contract in Qatar. What about this evolution?

It is obvious that the Germans realized that they had made a big mistake. In my opinion, 15 years ago, it was a nice strategic reduction according to the primary energy sources, in particular oil. Most of them were from Russia at the time. But then this fundamentally correct strategic weight took a creative place, and the main goal became protection against the effects of glass gases. The result is total dependence on natural gas. The basic strategy was also good, but the tactic failed catastrophically. Now, due to the uncertainty of gas supplies from Russia, Germany is forced to change tactics. And prioritize security of supply over climate protection.

Doc. Eng. Lubomr Lzal, Ph.D.

He currently works as an associate professor at BUT, FEE and CIIRC, where he specializes in economics and energy. He was a member of the board of directors of the Czech National Bank, director of the Institute of Economics of the Academy of Sciences of the Czech Republic and of CERGE UK, and rector of the Anglo-American University in Prague. . He worked at foreign universities in the Netherlands and the United States and participated in numerous European projects. In the past, he was the supervisor of the EZ council and a member of the government’s National Economic Council. He is currently a member of the AV R Energy Commission and has co-authored books on Czech energy. In his own research he has focused primarily on applied microeconomics, market structure and the environment.

What is the role of natural gas in the production of electricity, ie in major energies?

Germany’s initial weight as the economic leader of the EU was simple. We will stop the operation of nuclear power plants and invest heavily in the construction of RES, ie new wind and solar sources. And gas plants will balance the volatile RES supply. Gas has also become absolutely essential for the production of electricity and to ensure the stability of the distribution system. However, in addition to balancing erratic RES supplies, gas has a role to play today. Due to the fact that gas-fired power plants are now so-called grain power plants, even in normal storage operation, so when trading on the energy exchange, this determines the price of gas and the price of electricity. You have much more influence, not a subsidized tool for RES, which are emission allowances.

Is this why most European countries are now looking for a secure supply of LNG?

Yes, because if the natural gas tanks could not be refilled during the summer and a really freezing winter was added to it, when there was a blow, there would be enormous problems with the stability of the delivery system. In addition, we will freeze in semi-closed factories.

Under these circumstances, is it still appropriate for the Czech Republic to participate in the European electricity market?

So I don’t think the challenging environment of the electricity industry has always suited us. This suited our producers perfectly, who could sell electricity with high added value. But in the past, the Czech consumer bought electricity at “German prices”. This also had a positive effect. The relatively high price has exerted a natural pressure on disputes and efficiency. With the sharp rise in gas prices, this price gap has widened unsustainably, and for a Czech household tetanus, the pressure on litigation is hard for me. And not just for citizens, but also for businesses. Even you can’t start a business with multiple competing energy prices. For example, Jaroslav Ml.

Can you imagine a separate variant of the European electricity market?

I don’t think he’s unruly. I have huge political costs, but huge political costs give me the opportunity to stay in this market. It is comfortable for manufacturers to produce at low prices and sell at high prices. Huge profits are generated, so you get your hands on it, because the EZ dividend is high, as well as the VAT receipts. But then companies outside the energy industry are asking for help, because such high energy prices cannot stop.

Where do you manage these political costs?

The source of electricity generation is in private hands. As soon as the state dreamed of their profits, the shareholders began to arm themselves. Incidentally, this also applies to the minority shares of EZ.

And what about emission quotas? Do you think the market for them will stay the same?

I will probably get a duck myth. Under current conditions, the emission quota market is irrelevant. Because grain plants are gas plants. You determine the price of electricity. And the price of gas is so high, and ultimately the emission quota only plays a small role. Moreover, if the quota market remained in its current form, then quotas would only be a tool to add tax to coal-fired power plants. Or it is possible to accept the idea which a few years ago was proposed by an EU member state which did not like the German road, in particular France, Italy and Spain . Let’s see how much electricity we produce in each country, take the price of a house, then trade the rest as you wish.

When are we in the economy, how do energy prices affect inflation?

In the past, of course, energy prices had a limited impact, but they were not as severe as they are today. Energy price differences have always been short-lived and insignificant. Moreover, the new commodity import policy does not take into account the impact on inflation, but secondarily, because it is reflected in other domestic prices.

However, the current price spike can only be compared to the eye of oil in the 1970s. Although we had a gas crisis in 2007, it was just a commodity and has not not affected the prices of all energy raw materials, nor the prices of gasoline and diesel. In contrast, today the price mesh, which started at the beginning of the year and continued after the Russian invasion of Ukraine, has affected and will gradually continue to affect all prices. Including the prices of cement, steel, fertilizers and therefore food.

How is V leton’s inflation estimated?

Estimation under the conditions of current uncertainty is practically impossible. If I had to try ovens, I would say it would be up to 15%.

Under the influence of these price meshes, they can change a lot. Will the change not affect, for example, the implemented transition to electromobility?

I never really cared about this ambitious full of hockey records. A really massive electric car with heat pumps will run into two problems. First, the lack of transmission capacity at the ends of the system, the so-called last-minute connection problem. The problem with then is the lack of production in relation to the growing consumption. And the rapid number of electric cars will eventually hamper and end support. Instead of supporting, the state should also tax electric cars to make up for the shortfall in fuel excise duties.

He gave me the one that makes me dizzy. If grain power plants are gas-fired, then don’t you use gas directly as fuel in cars? A fodder – gas for electricity and the necessary tracks and non-ecological batteries. The costs of gasoline vehicle fleets are incomparable, not electric fleets with the construction of new infrastructure. Here are the physical laws in the first place and the political decisions must be made to them. Not the opposite.

Clem Green Deal achieves carbon neutrality. According to Luke Kovanda, the EU could have fulfilled this obligation in two ways. For the first influential disconnection of coal resources and the use of nuclear resources without deepening verticality in Russia, or a careful shutdown of traditional sources and after a decade of deepening Russian gas verticality. Zelen et al. they chose the path of two. Do you agree with this statement from a fellow economist?

Yes, but I would add it. During the arrest, the first strategic weight was triggered by the oil crisis. Reduce dependence on oil, reduce pollutants in power generation. There is a boom in nuclear energy. But then we replaced that strategic goal with carbon neutrality. And the dependence on oil, which is logistically strong all over the world, we have replaced the dependence on natural gas, which we only have in sufficient quantity from pipelines. In terms of imports, we got not only children under the gutter, but also in the flower. Today, we can import oil and gasoline more easily than LNG. Moreover, we have started to go against the emission-free nuclear power plant, contrary to the objective of carbon neutrality.

How are you approaching the current tender for the Dukovany nuclear power plant?

As I have defended in two disputes over the completion of Temelna. A nuclear power plant is an insurance policy for energy security and system stability. And if the price of nuclear power plants represents a quarter of the costs that will break down into subsidies for solar power plants in twenty years, then the insurance of the source, which has a lifespan of 60 years, will certainly pay off. Although we don’t need Temeln or Dukovany today. But furnaces can’t predict the future of energy using technologies that really don’t work.

The main problem is the economically profitable possibility of accumulating large volumes of electricity. The equivalent of Temelna’s production volume today does not make sense for batteries or vodka. But we need such a technological possibility to transfer cheap solar electricity from summer to winter on heating. I have to keep in mind what is available and if a new technology can be put into practice, I can modify it very easily, without jeopardizing the energy security of the state. We have practiced the procedure so far, and we have a lot of security when we don’t have the price, but the availability of some een at all. We cannot do without nuclear power and then we have to deal with natural gas and high-energy coal, especially for stability.

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