After a dynamic economic recovery in the first months of the reporting period, the 2021/2022 fiscal year (1 October 2021 to 30 September 2022) at Energie AG Oberösterreich (Energie AG) was characterised by a series of crises of a political and economic nature. The outbreak of the Russian-Ukrainian war on 24 February 2022 exacerbated existing supply chain problems and price increases, provoking an energy and raw materials crisis along with a substantial acceleration of inflation, which had already been on the rise beforehand.
This was followed by the first interest rate rises by the European Central Bank to curb historically high inflation. The financial markets expect further increases in key interest rates. Given the burgeoning risk of stagflation or recession in the major economies, the conflict of interests between fighting inflation and supporting the economy remains intense.
The Institute for Advanced Studies (IHS), the Institute of Economic Research (WIFO) and the International Monetary Fund (IMF) expect economic growth in the range of +2.7% to +3.1% for the euro area in 2022 (previous year: +5.3%).
Current forecasts see growth in the Austrian economy of between +4.7% and +4.8% in 2022. In the previous year, Austria’s gross domestic product (GDP) growth was +4.6%. The high inflation rate, mainly driven by energy and raw material prices is a cause for concern. After reaching +2.8% in 2021, the rate is expected to settle at between +7.7% and +8.5% in 2022. Having said this, the IMF is of the opinion that inflation rates are likely to peak at the end of 2022 in most countries, with inflation expected to remain at significantly elevated levels for some time after this.
For the Czech Republic market relevant to Energie AG, an increase in the gross domestic product of between +1.9% and +2.5% is anticipated for the calendar year 2022 (previous year: +3.4%).
Energy and climate policy environment
In addition to a wide range of agenda decisions in the field of energy and climate policy, the reporting period was above all characterised by measures intended to cushion the impact of the energy price shock, reduce energy dependency on Russia and improve the security of supply.
The aim of the EU Commission’s “Hydrogen and Gas Market Package”, as presented on 15 December 2021, is to integrate renewable and decarbonised gases and hydrogen into the European legal framework. Moreover, the package includes requirements for regulating and unbundling hydrogen networks and strengthening consumer rights.
On 2 February 2022, the EU Commission released the final wording of the complementary delegated act of the EU Taxonomy Regulation on technical assessment criteria for electricity and/or heat production with gas-fired power plants and from nuclear energy. The act classifies held-to-maturity investments in hydrogen-capable gas-fired power plants which continue to be operated with natural gas for a transitional period, and for which very strict emission limits were set, as a sustainable transitional activity. The overall objective of the Taxonomy Regulation is to redirect capital flows into sustainable investments by classifying economic activities in accordance with sustainability criteria.
In May 2022, the Commission presented its previously announced “REPowerEU package” to rapidly reduce dependence on fossil fuel imports from Russia and accelerate the energy transition. The package also includes considerations relating to short-term market intervention, long-term market design reforms as well as recommendations for preparing for a major interruption to the gas supply.
As part of the “Fit for 55” package, the European Parliament drafted reports on the Renewables and Energy Efficiency Directives in September 2022, calling for further acceleration in the expansion of electricity generation from renewables and a significant increase in energy efficiency ambitions. As early as June 2022, a European Parliament report on the revision of the EU emissions trading system was adopted.
On 30 September 2022, the Commission’s proposed regulation on emergency measures was adopted in the Energy Council of Ministers. The material objective is to counteract price increases and relieve the burden on electricity consumers by setting targets for reducing electricity demand and for siphoning off and redistributing surplus revenues. The measures will come into force on 1 December 2022 and initially apply until 30 June 2023. The EU member states will be tasked with their detailed implementation.
In addition to this, a number of other energy policy directives were adopted at EU level during the reporting period. They include the communiqué on dealing with higher energy prices (“Toolbox”) and new EU Guidelines on State aid for Climate, Environmental protection and Energy (CEEAG).
In Austria, the federal government and the electricity and gas utilities undertook a number of activities during the reporting period to alleviate the social hardship caused by the high energy prices. In February 2022, in the scope of the Electricity Industry and Organisation Act 2010 (ElWOG), the National Council also standardised a legal entitlement for households and small businesses to instalment payments, in the face of additional payments for the annual electricity bill. On 7 September 2022, Austria’s federal government presented plans for an electricity cost subsidy law to ease the burden on household customers. This “electricity price cap” is intended to provide financial relief for basic consumption of up to 2,900 kWh per metering point for the period from 1 December 2022 to 30 June 2024.
In January 2022, the Austrian National Council ratified the eco-social tax reform, thereby introducing national CO2 pricing for petrol, diesel, heating oil, coal and natural gas. The associated National Emissions Allowance Trading Act provides for graded CO2 pricing of sectors outside the EU emissions trading scheme, with this taxation to be offset by a climate bonus and other relief measures. The enactment planned for July 2022 was postponed to 1 October 2022 by a resolution of the National Council.
Also in January 2022, a minor amendment to the Renewable Energy Expansion Act (EAG) was passed in order to address previous state aid concerns voiced by the EU Commission. In April 2022, the first regulation for investment subsidies accompanying the EAG was adopted with details of subsidies for small photovoltaic, wind and hydropower plants.
Three amendments to the Gas Industry Act stipulated, among other things, the establishment of a strategic gas reserve of 20 TWh by November 2022 and a set of instruments for the procurement of balancing energy with mandatory storage (Market Maker). The last amendment introduced a “use it or lose it” principle for systematically unused storage capacities, requiring all gas storage facilities on Austrian territory to be connected to the Austrian gas grid.
As an economic steering act to be applied in a crisis situation, the amendment to the Energy Steering Act from June 2022 governs compensation for asset impairments in the case of steering measures for gas and electricity. On top of this, large consumers can now voluntarily store gas volumes, 50% of which are protected against expropriation in the event of steering.
To further secure the gas supply in Austria, a Natural Gas Steering Measures Regulation was submitted for review in July 2022. This is intended to create the conditions for natural gas substitution with fuels such as coal, oil, or biomass for large consumers, district heating companies, and combined heat and power (CHP) plant operators subject to mandatory steering. A resolution has yet to be passed.
The Gas Diversification Act was adopted at the end of June 2022 in order to cushion the additional costs of diversifying the procurement of natural gas from non-Russian sources and of converting plants for generating electricity, heat and/or cooling to alternative modes of operation. An amendment in July also provides additional financial support for switching from gas to other fossil fuels.
A consultation draft for an amended Environmental Impact Assessment Act (UVP-G) was published on 25 July 2022. The aim of the amendment is to accelerate projects needed in the scope of the energy transition. Particular attention was paid to avoiding redundant audits and to improving the way in which procedures are structured, including the setting of deadlines by the authority. A further material proposal is that of considering the state of the art at the time a project is launched instead of that at the time of the decision as authoritative. This would lead to a differentiated view of the projects, especially in the case of renewable energy generation plants, prompted by rapid technological progress.
1) 1) Sources: IHS (Institute for Advanced Studies): Fall Forecast of the Austrian Economy, 2022 – 2023, 7 October 2022. IMF (International Monetary Fund): World Economic Outlook Database: October 2022 (imf.org), 17 October 2022. WIFO (Austrian Institute of Economic Research): WIFO Economic Data – WIFO, 20 October 2022.