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Impact of Energy and Fuel Price Increases on the Business Sector

2022. december 12.

Research commissioned by HCCI and carried out by IEER and PwC on the impact of energy and fuel price increases on the business sector

Domestic energy prices have risen dramatically over the past 1.5 years for electricity, natural gas, district heating and, to a lesser extent, fossil fuels. The price increases have also put domestic SMEs in an extremely difficult situation.

HCCI pays particular attention to informing government actors immediately about the problems of the domestic business sector and the related proposals for solutions. In order to ensure the credibility of the proposals, an extensive analysis based on online questionnaires and in-depth interviews was carried out on behalf of the Hungarian Chamber of Commerce and Industry, in cooperation with HCCI IEER Nonprofit Kft. and PricewaterhouseCoopers Hungary Kft. The main findings and lessons learned from the analysis are as follows.

The rise in energy prices is a very significant problem for businesses and will have serious economic repercussions in the absence of adequate public intervention

  • 81% of the companies surveyed plan to pass on rising energy prices to consumers in the event of further energy price increases; however, 92% do not believe this is fully possible
  • 48% of companies will compensate for price increases by freezing wages
  • 41% of companies are also planning layoffs
  • 53% of companies may postpone investments
  • Without state intervention, half of companies can maintain normal operations for less than 6 months

In addition to mitigate the social impact of rising energy prices for household customers, the analysed European countries also pay particular attention to the situation of industrial and commercial customers

Typical measures include energy efficiency investment subsidies, VAT reductions, price caps, direct state aid for energy costs

Existing domestic support is not sufficient to mitigate the impact on SMEs

There are some promising programmes (e.g. the Factory Rescue Program, the Energy Cost and Investment Support Programme for SMEs in the Manufacturing Industry), but their scope is too narrow, they are only available on a grant basis and the aid intensity is not sufficient.

Additional measures are proposed to avoid negative impacts on the national economy

  • Extension of the SME Energy Cost and Investment Support Programme to the non-manufacturing sector, in particular in relation to energy cost support
  • Increasing the investment aid intensity (currently 15%)
  • Easing the conditions for tendering (e.g. easing the employment obligation) and possibly even revising the conditionality of tendering, e.g. following the German model where the State pays the December energy bills of all SMEs
  • VAT reduction on energy (electricity and natural gas); or, if this is not possible, acceleration of VAT refund process.
  • Enabling solar power plant licensing more widely and speeding up administration (while taking into account grid congestion)
  • Handling the technical takeover and connection of already completed solar power plants as a priority for the Distribution System Operators.
  • Prohibition of immediate termination by the energy trader in case of payment delays and e.g. specify an obligatory payment reminder and establishing a two-week "notice period"
  • Closer consumer protection monitoring of energy traders to avoid abusive contract modification practices
  • If electricity traders are not able to make offers to customers as quickly as expected in November and December 2022, transitional provisions for January 2023 to prevent companies from obtaining electricity at relatively high prices under the current procedure
  • Consultation with energy market operators on the possibility of easing certain guarantee (collateral) obligations for energy traders, e.g. establishing a state guarantee, thereby reducing their financing burden and creating opportunities for more favourable offers

Possible involvement of HCCI with the regional chambers

  • Education and awareness raising: widespread communication of energy saving opportunities, with practical examples and sharing of best practices
  • Raising awareness of available energy efficiency investment support schemes, tax incentives and other financing sources
  • Simplified energy audit service for SMEs - contracting energy auditors to provide a "simplified energy audit" service free of charge or at a reduced fee to SMEs that request it.