Energy Landscape in the Czech Republic

The International Energy Agency has released a report titled “Czech Republic 2021: Energy Policy Review” which provides detailed coverage of the country’s energy sector. REGlobal presents certain key extracts from the report covering phase-out plans of coal and energy transition, energy efficiency programmes, policy overview of the renewable energy sector and recommendations to further grow the sector…

Over the next decade, a key challenge of the Czech Republic’s energy sector is to prepare for the phase-out of coal from the energy mix. Coal has been and still is a key energy source in the Czech Republic. In 2019, it accounted for one-third of the total energy supply, 46 per cent of electricity generation and over 25 per cent of residential heating. Still, the role of coal in total energy supply (TES) has declined by 19 per cent from 2009 to 2019, primarily driven by reduced coal-fired power generation that was replaced by natural gas, bioenergy, nuclear and solar photovoltaic (PV). However, coal still accounts for half of the total domestic energy production, despite a 36 per cent decrease since 2009.

The Covid-19 pandemic strongly affected coal production in 2020, which decreased by 24 per cent compared to 2019. The contribution of coal in TES declined by 15 per cent, mainly driven by a decreased use of coal in electricity generation (-17 per cent). Also, the share of coal in electricity generation decreased to 41 per cent in 2020 and was replaced by natural gas, bioenergy, nuclear and solar PV.

In the Czech Republic, renewables do not yet play a major role in TES, although their share has increased by 71 per cent since 2009, reaching 16 per cent of total final energy consumption in 2019. This was mainly driven by bioenergy. In 2019, renewables accounted for 22 per cent in heating and cooling, 14 per cent in electricity generation, and less than 8 per cent in transport.

Decline in the carbon intensity of the economy

The declining coal consumption between 2009 and 2019 has contributed to a 15 per cent reduction in the carbon intensity of the economy and a 22 per cent reduction of the carbon intensity of electricity and heat generation. For both indicators, however, the Czech Republic remained above the IEA average in 2019. Between 2019 and 2020, both the carbon intensity of the economy and the carbon intensity of electricity generation dropped by 6 per cent, because of the decrease of coal use in TES and electricity generation, due to the Covid-19 pandemic. The country has shown a decoupling between economic growth and energy consumption since 2009, but its energy intensity remains above the IEA average. While demand from industry declined, the transport and building sectors drove growth in final energy consumption. Overall, total final consumption has increased by 2 per cent since 2009.

After declining noticeably from 2005 to 2015, the Czech Republic’s total greenhouse gas emissions have been relatively stable, and more efforts are needed to reach the 2030 target of reducing emissions by 30 per cent compared to 2005 levels. Going forward, the government is revising the country’s energy policy and related legal and regulatory framework. This in-depth review and its recommendations are intended to contribute to the development of the new State Energy Policy (SEP) and related policies and measures.

Phasing out coal from the energy mix

The Czech government is studying options of how and when to phase out coal from its energy mix. For this purpose, the government established a Coal Commission in 2019 that delivered its recommendations in December 2020. It recommended phasing out coal by 2038 at the latest. The government has not yet decided when coal will be phased out and has requested that the Coal Commission analyse options for and the implications of an earlier coal phase-out.

In its recommendation for a phase-out by 2038, the Coal Commission projects that initially coal would be replaced largely by natural gas generation, while the share of renewable sources would increase to 25 per cent, largely in line with the SEP of 2015 and the country’s National Energy and Climate Plan (NECP) of 2019. Nuclear capacity would become the single largest generation source if coal were to be phased out in 2038, as new nuclear capacity would become available in 2036. For comparison, according to the NECP, coal would still account for 38 per cent of electricity generation in 2030.

In the heating sector, coal would eventually be replaced by a combination of fuels; a specific heating strategy is currently being prepared. For comparison, the NECP sees coal as still being the dominant source of centralised heat production in 2030, with a share of 47 per cent, down from 55 per cent in 2018. The European Union’s (EU) new climate ambitions for 2030 and 2050 and the upcoming changes to the EU Emissions Trading System are expected to accelerate the coal phase-out, regardless of the government’s decision concerning which year coal will be phased out. Coal-fired power and heat generation will become less competitive, in addition to stricter air pollution limits set by the EU for power plants as of 2021.

Hence, an earlier phase-out of coal than that recommended by the Coal Commission in 2038 is conceivable purely based on economic considerations. The Czech Republic is not well placed to substitute coal-fired capacity on short notice other than by importing electricity, as there is currently no new large generating capacity of any kind under construction, or in the pipeline. Any new capacity additions to 2030 are likely to come from smaller renewable installations and decentralised sources.

Independent studies show a potential for around 7 GW of PV capacity in 2030 and 1.6 GW of wind power, which combined could contribute 15 per cent of total generation in the same year, compared to 3.6 per cent in 2019. However, the renewables shares for 2030, in both the SEP and the NECP, appear to lack ambition to harvest this potential, with just 4 GW of solar PV and just under 1 GW of wind power.

Energy transition with RE: START Programme

The phase-out of coal and coal mining in the Czech Republic poses important economic and social challenges. Coal mining is an important sector for the regions’ employment and economy. To this end, in 2015 the government launched the “RE: START Programme” as a comprehensive framework for the restructuring and fair transformation of the concerned mining areas. The Czech Republic is hence well placed to leverage the funding to be provided under the European Just Transition Fund, which can be used, among others, to retrain coal miners and power plant workers.

Energy efficiency

The government has deployed an increasing number of public financing programmes, in particular in the building and industry sectors for energy efficiency. It recently launched a public awareness campaign to increase the knowledge about the depth and extent of available support programmes and to ensure full uptake of the programmes.

While the SEP and the NECP identified energy efficiency as a strategic priority, the targets set for 2030 do not seem to fully exploit the energy efficiency potential in the Czech Republic. Applying the “energy efficiency first” principle would help the coal phase-out by, for example, reducing the heating and electricity generation adequacy problems. The upcoming revision of the SEP offers an ideal opportunity to apply the “energy efficiency first” principle at the heart of policymaking, and to set more ambitious targets for the period to 2030 and beyond.

Having dedicated and specialised teams responsible for the implementation and monitoring of energy efficiency policies can make these policies more effective. The IEA encourages the government to consider creating a dedicated institution for this purpose.

Renewable energy policy and targets

The Czech Republic’s renewable energy targets are mainly driven by obligations under the EU’s Renewable Energy Directive (RED) for the period to 2020 and by RED II through the NECP for the period to 2030.

The government set a target for 2020 to reach a share of 13 per cent of renewables in gross final consumption, which was already achieved in 2013. In 2019, the share was just above 16 per cent. The sector targets for electricity and heating and cooling were also achieved well in advance. However, the country is not on track to reach the 2020 target in the transport sector.

By 2030, the Czech Republic is committed to increasing the share of renewables in gross final consumption to 22 per cent as part of its contribution to the EU-wide target of 32 per cent. Under the NECP, interim targets are set for 2022, 2025 and 2027 to allow the implementation of additional measures if the country is not on track towards the 2030 targets.

For 2030, the Czech Republic has further adopted in its NECP the EU minimum target of a 14 per cent share of renewables in the transport sector and also set an indicative target to increase the share of renewables in the cooling and heating sector by 1 percentage point annually in the period 2021-30. The government has set an ambition to reach 17 per cent of renewables in total electricity generation by 2030 in the NECP.

The targets set for 2030 are not particularly ambitious compared with the targets of other IEA countries for the same year. The anticipated annual growth rate in the electricity sector is well below the country’s achievement of the last decade, while the trajectory for transport is steep compared to historical trends.

To reach the 2030 targets, the government needs to fundamentally reset the legal and regulatory framework and supporting measures in all three sub-sectors. Act No 165/2012 is the main legislative basis to support sources of energy for the period to 2020. The act and the National Renewable Energy Action Plan of 2017 specified measures and tools regarding the development of renewables until 2020. Operational support schemes were the key measure for the promotion of renewable energy sources.

However, the Czech Republic also operates other support schemes, including tax instruments, regulatory measures such as facilitating administrative processes, and indirect support measures such as providing guarantees of origin and raising consumer awareness.

From 2021 onward, the NECP outlines policies and measures for renewable energies until 2030. The preparation of the detailed support schemes and measures for the period from 2021 to 2030 is ongoing, with several investment support schemes already finalised. The government proposed an amendment to Act No 165/2012 Coll. (the Energy Act) in April 2020 that would substantially restructure the existing operational and investment support schemes and align the overall support measures with the new priorities set out in the NECP, such as a special focus on the transport sector and support for high-efficiency co-generation. The main features of the proposed amendment are the:

However, the legislature has not yet approved the amendment. Pending the enactment of the proposed act into legislation, the renewable sector in the Czech Republic is experiencing a large degree of uncertainty. Consequently, necessary investments may be delayed, which will make it more challenging to meet the interim and final renewable targets for 2030.

The EU’s Modernisation Fund and the Recovery and Resilience Facility are the major sources for investment support for renewable energies towards 2030. The exact allocations under the funds for renewable energies have not yet been determined, but the Czech government expects that from a total of Euro 5.8 billion of revenues under the Modernisation Fund, 25 per cent would be devoted to renewables over the period to 2030. In addition, Euro 250 million would become available from the Recovery and Resilience Facility, about half of which would be allocated for renewable electricity and the other half for the transformation of heating and cooling. Moreover, the government also expects that funds would become available under the EU’s Just Transition Fund, but details are yet to be decided upon.

Recommendations

All in all, the report’s recommendations for the renewable energy sector to the Czech Republic are:

• Accelerate the approval procedure for the legislation to promote renewable energies (amendment to Act 165/2012) for the period after 2021, to avoid missing mid-and long-term decarbonisation goals.
• Prepare and initiate legislation for promoting renewable and low-carbon fuels that are not covered under Act 165/2012 to help achieve emissions reductions and climate targets in the most cost-effective way.
• Revisit the technical potential for the integration of variable renewable electricity into the system by studying best practice examples of countries that have already reached much higher shares of these renewables into their systems.
• Together with stakeholders, assess the full economic potential of all available forms of renewable energies and accordingly develop road maps to achieve those potentials to, in particular, prepare for the phase-out of coal power plants.

The full report can be read here