Ruzic: Prices of Electricity and Gas for Companies Should Not Be Set in Accordance With European Market

The economy of Serbia is eagerly awaiting May 1 to learn by how much the prices of electrical energy and gas will drop, as they have made up a considerable part of their costs since the beginning of the energy crisis, and the consumers pay for this. Whether it’s bread, meat, milk, heating, where each trader cites the enormous electricity and gas inputs as the main excuse for the price increase.

Although nobody is yet coming out with the details of the new price calculation methodology, one thing is likely – the price of electrical energy for our economy is (considerably) larger than the real economic price and there are more than justified reasons for it to be reduced.

– It is of extreme importance for the average price of electrical energy to arise from the main task of Elektroprivreda Srbije to provide electrical energy to all consumers in Serbia at minimum prices in the next 50 or 80 years. That task can be permanently met only if the average price of electrical energy in the local market is retained at an economically justified level. However, that’s not the price at which the trading is done in the organized electricity market in Serbia, and especially not in the world, it’s no kind of EU price average, it’s neither a political-populist or a social category – Dr Slobodan Ruzic, the adviser to the company for energy efficiency, engineering and consulting ENS Group, says for Energija Balkana.

He points out that “our authorities and the management of EPS should stop boasting about the fact that the price of electrical energy for households here is the lowest in Europe, because that’s not something that one should boast about. Also, it’s not good at all to set the price for companies based on the prices in the EU market. For us, those are economically unjustifiably high prices, which only burden our economy and reduce its productivity and competitiveness.”

Electricity price should cover construction of new capacities

This energy expert notes that an economically justified price of electrical energy is the one which enables the covering of all the operating production costs in the long term, as well as the construction of the necessary replacement and development capacities. The calculation of this price must be done with an adequate discount rate, for example, around 8%.

– Around 25 years ago, when I was calculating this price for EPS, it was around 7.5 cents per kilowatt-hour, including the costs of transfer and distribution. However, at the time, I did the calculation with the assumption that the electrical energy system contained only thermal and hydro power plants. Today, an economically justified price of electrical energy should be calculated considering the operating and capital costs of the existing capacities, but also, which is mandatory, the costs of development, that is, the construction of TENT B3, RHPP Bistrica and RHPP Djerdap 3, 2,200 megawatts of wind farms and 2,100 megawatts of solar power plants in the period between today and 2040. In other words, today, the average economically justified price would certainly be higher than 25 years ago. It should be somewhere between the current price for the economy of EUR 120 per megawatt-hour and the current average price for households, which is nearly twice as low – points out Dr. Ruzic.

Gas price should not be tied to price in EU

Talking about the price of gas, Ruzic points out that we have to be much more in line with the international circumstances, since we have to import a great majority of that energy source. Setting a justified price for the economy and the households, as he says, is very simple in this case. The price at which we import and at which Srbijagas purchases gas from Gazprom is known, it is relatively easy to determine the operating costs and, based on that, set the overall price of natural gas for companies, heating plants and households.

– Here too, however, we should not be tied to the price of natural gas in the EU market at all. There, the price is very changeable, mostly too high, due to the spoiled international relations, the replacement of a large part of the cheap Russian natural gas with the expensive American liquefied oil gas, as well as the unpredictability of the market. With luck, and it has to be said, with the skills of our authorities, we have mostly avoided those great disturbances in the supply and the prices and that’s the way it should be in the future too – concludes Ruzic.

Elektroprivreda Srbije ad Beograd

ENS group

Elektroprivreda Srbije

Slobodan Ružić

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