Macroeconomic Costs of the Energy Transition in the Czech Republic

Background: Carbon neutrality and the entire energy transformation, especially of electricity supplies, lead to a change in the current energy paradigms. The past modelling approaches can lead to errors if not modified properly. Aim: In this article we estimate the lower-bound of direct macroeconomic costs of the proposed electric energy mix change in the Czech Republic. Methods: We augment the physical electric energy balance model with seasonally (monthly adjusted) estimated hourly average electric prices to show the economic difference between the yearly energy balance and import costs due to seasonal price patterns. This simple economic model is then applied on proposed future energy mix stemming from State Energy Policy (SEK) that does not consider the seasonal price patterns at all, and the paper goal is to provide the approximate magnitude of such an error. Our backward simulation imposing past prices and seasonal patterns on future energy mix is conservative, i.e., provides lower-bound estimate of the economic effect but also allows us to avoid future price and future consumption prediction errors. Results: We show that the envisaged change in production mix leads to a direct increase in net imports that are comparable to the value above 0.5% GDP. When considering the fiscal multiplier, the total negative impact shall be around 1% GDP, annually. As the Czech economic growth is not stellar, the implied GDP decrease can further worse economic prospects. Practical relevance/social implications: Models used by the state underestimate total costs and potential social impact of economic shrinkage. Value: State energy policy shall be revised considering substantial effect of seasonal price variations leading to fiscal imbalances.