Spotlight: Czech energy

Our Spotlight series returns, this time illuminating the energy sector in the Czech Republic. How is the country adjusting to the ongoing energy crisis? And what does the sustainability-demanding future have in store for the EU's third greatest coal consumer??

Continue reading for the key highlights - and feel free to contact us should you be left wanting more.

Princeps Insights

• According to the current (and rather optimistic) government plan, coal is to be phased out of the country's energy mix by 2033. Given the delays in nuclear energy development and the current LNG supply insecurities, the mid-2030s present a more realistic timestamp.
• An analysis by the Association for International Affairs concluded that the coal phase-out will result in the loss of approximately 25,000 jobs, most of them focused in the country's three coal-heavy regions. Significant attention to these regions will be necessary during the phase-out to prevent underdevelopment and structural unemployment.
• The government plans to leverage the energy transition as a vehicle for a wholesale modernisation of the economy, from digitalisation to the development of new industries linked to clean energy. Renewable energy sources (RES) especially present a prospective field with the potential to provide a large number of quality jobs.?
• The new government prioritizes nuclear power development over other energy sources and wishes to move ahead with the overdue Dukovany NPP expansion.
• Solar energy is set to be the key RES during the transition, with both significant government investment and public interest.
• Gas is set to play a major supportive role as a relatively cleaner fuel during the coal phase-out. The temporary gas demand increase should be offset by a greater share of LNG in the total imported volume. The government is working to secure contractually guaranteed access to an LNG terminal in Poland with a deal likely to be reached during 2022.

The coal days are over

The former government's lukewarm acknowledgement of the 2038 coal phase-out date recommended by the heavily politicised Coal Committee was met with widespread criticism,? claiming that a deadline any later than 2033 would prevent the country from fulfilling the Paris Agreement.?

Among those critics were also the parties TOP 09, STAN, and the Pirates, who now all form the current Czech government. The government's programme promises the publication of a new and updated State Energetic Conception by the end of 2023 which should account for EU climate goals as well as build conditions for the planned coal phase-out by the end of 2033. Furthermore, the main Czech energy supplier ?EZ has announced plans to lean away from coal as early as 2030. However, a complete coal exit to this date remains unlikely due to calculations using unrealistic rates of RES and gas investment and development. For the scenarios to come to fruition, the combined gas and RES capacity would have to increase more than threefold.

Instead, the phase-out plans count on liquefied gas being the main transitional fuel, the supply of which has been disrupted by the war in Ukraine. In response, the Czech Republic has filled its capacities to the brim, rented out capacities in Dutch terminals, and is continuing negotiations with Poland about securing contractually guaranteed access to Polish terminals as well as reopening the construction of the gas pipeline Stork II.?

The Czech government remains committed to the 2033 deadline but short-term plans will likely require a higher reliance on coal than was expected. The country's main coal company OKD is extending its coal mining operations at least until the end of 2023 despite originally having planned their cut-off, and the energy giant ?EZ has announced plans to delay the coal phase-out in some of its coal power plants.

Alternatives

With coal currently accounting for approximately 40% of Czech energy production, the successful implementation of any phase-out scenario depends on developing alternatives. The government sees the future of the Czech energy mix in nuclear energy which currently accounts for 40% of all energy and is planned to supply at least 50% of energy by 2050, as well as the development of renewable sources.?

One of the country's two NPPs, Dukovany, is currently awaiting an expansion of at least 100 MW of new capacity. As part of the process, the government has embraced the so-called “Lex Dukovany”, thereby excluding Chinese and Russian companies from the development of the country’s NPPs. For the Dukovany expansion, three suppliers currently remain in consideration: The French EDG, the South Korean KHNP, and the U.S. Westinghouse.?

Further nuclear developments were partially hindered by the exclusion of nuclear energy from the EU taxonomy of sustainable sources. Being one of the Czech government's priorities, the matter was recently promoted by prime minister Fiala in the European Parliament. In a vote on the 6th of July, MEPs agreed to include nuclear energy and gas among sustainable sources under certain conditions and with time limitations in place. While this is good news for the Czech transition from coal, critiques are also abundant.

The second key component of the country's greener energy mix lies in decentralised renewable resources. Photovoltaics is to play a central role in RES development, and due to a history marred with corrupt projects, the government is choosing to shift from non-transparent grand industrial projects to local rooftop installations. According to current plans, at least 100,000 buildings should be equipped with solar panels by 2025 and adequate energy storage capacity installed. The development is being supported by EU funds, with the Modernisation fund offering CZK 150 billion for new RES projects. Subsidies are also available for house rooftop photovoltaic panels, with public interest already having surpassed last year's total - no doubt also because of the looming energy crisis. Accordingly, the solar capacity, followed by wind and gas, will see the largest increase over the next decade.?

Leading the way

Having taken over the EU presidency in July, the Czech Republic had almost no choice but to “put emphasis on the EU’s energy security issues, which are currently more pressing than the energy transition,” as is stated in the leaked agenda draft. The presidency is going to be accelerating the implementation of the REPowerEU, as well as managing the energy security crisis by working on the implementation of gas reserves regulation. The agenda also includes a plan to implement instruments to reduce “the negative social and economic impacts of high energy prices”.?

With one month down and five more to go, the Czech presidency has been viewed positively thus far. Its main success is the negotiation of an emergency gas rationing measure within the bloc, originally dubbed “mission impossible” - with ministers from Poland, Portugal, Spain, Cyprus and Greece first giving a resolute “no” to the idea. In the end, however, a consensus was reached, with Hungary being the sole member to vote against the agreement.

The presidency's agenda also largely aligns with the expectations of Czech residents, placing the government in a favourable situation where it can stand up for both European and national interests at once. 79% of the country's residents have expressed a desire for the presidency to address growing energy costs and their impacts, 57% would like to see the acceleration of the green energy transition and 52% claim the presidency should press for joint gas purchases. The Czech polling agency STEM is thus expecting a 10% increase in EU support to 60%, a new high since the last presidency in 2009.?

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