Rising electricity price hits the enterprises hard

Erkki Erilaid
Furious price jumps force you to carefully watch the clock.
Furious price jumps force you to carefully watch the clock. Photo: Madis Veltman
  • The rising price means for some enterprises an additional cost of 100,000 euros per month.
  • The entire price increase cannot be transferred to the final prices of the products.
  • A wave of bankruptcies and layoffs may come without government intervention.

Entrepreneurs are looking forward to autumn with fear, because in addition to the increase in consumer prices, high energy costs can lead to partial production shutdowns and layoffs.

At the same time, it is hoped that the government will find a way to avoid major problems through support schemes.

“According to the new fixed-price electricity contract, our energy costs will increase by more than 100,000 euros per month in the autumn," said Ago Teder, head of the Estover dairy company. “This is a very big economic blow for us. Fortunately, the companies of the group do not use gas to a significant extent, and this price shock will largely pass us by.”

But Estover's production equipment run on electricity and the company is trying to pass some of the rising energy costs into sales prices, according to Teder. “As a result, the prices of products will rise by an average five percent in the autumn. Perhaps it would not seem that much to the consumers anymore, especially if you compare the price increase of food products due to the nearly 60 percent increase of raw milk price or the cost of packaging, which went up several times.”

He added that transferring the price increase to retail chains is difficult and probably impossible to the full extent. “Despite the significant increase of dairy product prices in stores, the consumers have not started to buy less,” said Teder. “For example, cheese has been unreasonably cheap in previous years and was up to three times cheaper than ham with the same nutritional value; now the price difference has shrunk to one and a half times, but consumers have not reduced their purchase of cheese at all.”

Immense extra cost

According to him, Estover's annual electricity costs will increase by more than a million euros, and almost all food industry companies apparently face the same problem. "A serious intervention by the government is essential, otherwise the consequences will be uncontrollable,” said Teder.

Hansa Candle, the largest candle manufacturer in Scandinavia and the Baltic states, announced that it was forced to stop production due to the extremely high price of electricity. The Viljandi-based company stopped production on Wednesday from 6 to 7 p.m., because electricity cost four euros per kilowatt-hour during that time. Harri Juhani Aaltonen, manager of the company, told Sakala that it would not make sense to produce at this price. “If this price were to last for the whole month, it would cost us 1,500,000 euros.”

Aaltonen was unable to state the exact electricity price limit from which it would be wiser to stop production altogether. According to him, it depends on whether it is a heating season or not. “We have solar panels which produce 300 kilowatts of electricity per hour in sunny weather, and if we sell it for four euros, we would earn 1,200 euros per hour," said Aaltonen, asking why the company should pay high price for electricity when it could be done much cheaper with solar panels.

The Klunker tavern in Piusa, Põlva County, also closed its doors on Wednesday due to the price of electricity. “Klunker's kitchen is closed tomorrow evening, no food will be served. I dare not demand the clients to pay 400 times the regular price. I would like to recommend an understanding attitude, but I probably cannot expect it anymore,” the tavern announced on Facebook. Several other eateries also promised to act the same way yesterday.

Roman Kusma, manager of Rakvere Aqva spa, stated that what is currently happening on the energy market is completely incomprehensible. “There is nothing left for Estonia to do but to leave the Nord Pool electricity exchange,” he said. “Other support measures are not enough to compensate for the skyrocketing price. It would help if we could buy electricity at a price for which it is produced in Estonia at a reasonable profit.”

According to Kusma, it is difficult to manage spas due to the increase in electricity prices, but fortunately, their company fixed the price of electricity in January. “Nevertheless, the price is three times higher than what we paid a year and a half ago,” he mentioned. "At the same time, we now have electricity guaranteed for 12 years at the price agreed upon at the beginning of the year, and it is currently significantly cheaper than the energy exchange price.”

Ticket prices for spas have risen somewhat but in the highly competitive market, an at least moderate price increase cannot cover the large increase in the price of electricity and gas. "It is unthinkable to raise prices for consumers by dozens of percent all at once,” confirmed Kusma. He added that it is not possible to reduce costs in a spa because the ventilation, water pumps and saunas must work properly.

Chain stores are looking for ways to increase their energy efficiency. “Electricity makes up a significant part of the retail chain's daily costs, and in the long term, permanently high price of electricity may begin to affect daily costs," admitted Tiia Schapel, head of Maxima Estonia's marketing and public relations department. “Until now, we have not raised the final prices of the products directly to compensate for the high electricity costs."

The ministry delays the response

“In order to control electricity costs, we have renovated or introduced environmental systems in new stores with increased opportunities of heat recovery,” said Schapel. “We can use the residual heat of the building either to heat water or to direct it to the heating system.” She added that cheaper and environmentally friendly LED lights will also be introduced in the shopping halls of the stores which will allow reducing the electricity costs of lighting by about 25 percent. “By the end of the year, the temperature of the premises and the working time of many systems will be optimized as well.”

The Ministry of Economic Affairs has not yet announced how it will compensate the entrepreneurs for the increasing cost of energy, and Postimees failed to get answers to its questions by last night. Last season, companies and institutions were reimbursed the grid service cost by 50 percent from October to January and fully from January to March.

Several European Union countries have already promised to support entrepreneurs in the coming autumn and winter. Efficient support to entrepreneurship gives the companies in these countries a clear competitive advantage in the market.

It is really hard to predict a bright future in expensive electric light

Ille Nakurt-Murumaa, President of the Estonian Association of Small and Medium-sized Enterprises.

Uncontrolled price increase has a significant and hard impact on companies – from quite small firms to larger companies. In the more energy-intensive sectors with frequently low profit margin, this means a difficult decision: to curb activities by suspending production, making staff redundant or by temporarily closing the whole enterprise and dismissing the employees.

The idea that entrepreneurs have no worries – they can transfer the cost to the price of the production – and only consumers need to be supported, is extremely erroneous..

First of all, it is never possible to transfer all costs to the final price; and even if you do so, this means a serious decline in turnover because the increased price is no longer acceptable to the consumer.

In order to avoid bankruptcies and the loss of jobs, the government should compensate for the cost of grid services. The mechanisms of the electricity exchange should also be reviewed. Speculative activities should be curbed since it is not normal if companies go bankrupt due to uncontrolled price increases and the state pays compensation to consumers, while Eesti Energia reports its hyper profit.

The Estonian Association of Small and Medium-sized Enterprises intends to approach the government in the near future to find rapid solutions for the enterprises.