Future of Energy in the Czech Republic - Legal Prospects

Future of Energy in the Czech Republic - Legal Prospects

Czech Republic
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The EU has been preparing for a substantial transition of its energy sector to address the urgency of climate change. The Czech Republic has proposed raising the share of its renewable energy sources (RES) in the gross final energy consumption from the current 15% (approximately) to 22% by 2030 to contribute to the EU-wide goal of obtaining 32% of gross final energy consumption from RES by the same year. This means there will be a focus on developing RES in the Czech Republic, and the Czech government also plans to substantially strengthen the role of nuclear energy while allowing the coal-fired energy to decline.

This energy transition is likely to bring many business opportunities in upcoming years. For the transition to be as smooth as possible, the legal framework will have to adapt to current as well as to future trends. We have recently seen a number of legislative initiatives being prepared in the Czech Republic which reflect these trends, although there is still much (legislative) work to be done.

The centerpiece of these legislative changes is an amendment to Act on the Subsidy of Renewable Sources of Energy (the “RES Amendment”). The Czech government approved the RES Amendment in late April 2020. If adopted, the RES Amendment will significantly change the system of subsidizing RES in the Czech Republic. For new projects, it proposes abandoning the feed-in tariff system and keeping in place only hourly green bonuses for RES with an installed capacity of less than 1 MW (6 MW in the case of wind energy). For sources with a higher installed capacity, the RES Amendment proposes introducing an auction system in which the bidder agreeing to deliver the required capacity at the lowest price will be granted the subsidy. It is anticipated that this new system will apply to new energy sources put into operation in and after 2021. Additionally, the amendment provides the basis for supporting biomethane production in the form a green bonus.

From 2008 to early 2011, the Czech Republic experienced a rapid development in solar power plants, which benefitted from a subsidy that did not reflect the falling costs of solar power plant construction fast enough, making the plants very lucrative for investors. This period is usually referred to as the “solar boom.” Various Czech politicians (including the current Czech president) are vocal critics of the costs to the state budget caused by the “solar boom.” As a result, and in accordance with series of decisions issued by the European Commission between 2014–2017, the RES Amendment will set out a mechanism for retrospectively assessing the adequacy of the state subsidy for RES put into operation between January 1, 2006 and December 31, 2015 to address the alleged “over-compensation,” which will be measured on the basis of the internal rate of return of the sources. The most recent version, approved by the Czech government in late April 2020, appears to be least favorable for solar power plants.

Furthermore, the Czech government has also been taking steps to build a new nuclear reactor at the Dukovany nuclear power plant. It has been announced that a tender to build the new reactor should commence later in 2020 and should be finished by the end of 2022. The ambitious plan is that construction should start in 2029 and be completed by 2036. The Czech Ministry of Trade and Industry has been instructed to draft a new law on measures for transitioning to low carbon energy (the main principles of which are yet to be announced).

The Czech government is also preparing an entirely new Energy Act. In October 2019, the Czech Ministry of Trade and Industry presented the principles of a new Energy Act, designed to address the transition of the energy sector and decline in the use of carbon energy, to the government. A draft of this new Energy Act is not yet publicly available.

On January 1, 2021, an amendment to the Act on the Conditions for Trading with Emission Allowances, transposing recent EU legislation, will come into effect. Among other things, this amendment implements an innovation fund which will help companies and households finance certain energy innovation projects. It was previously reported that about CZK 100 billion – approximately EUR 4 billion – will be made available to the fund over the ten-year period, but the final figure has not yet been determined. 

By Lukas Janicek, Partner, and Lukas Vymola, Associate, CMS Prague

This Article was originally published in Issue 7.6 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.