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Home Finance & Regulations In focus: the Czech Republic's energy market

In focus: the Czech Republic’s energy market

The Czech Republic has an increasingly important role to play in the European Union’s energy diversification. Not only it is the fifth-largest net electricity exporter in the EU, supplying electricity to Austria, Slovakia and Germany. It is also an important transit country, especially concerning natural gas originated from Russian imports under long-term contracts with Gazprom.

Coal phase-out

Fossil fuels still account for the majority of the energy mix, due to the substantial coal resources available in the country. According to the Organisation for Economic Co-operation and Development (OECD), in 2017 electricity was mainly generated from domestic coal (51 per cent) and nuclear energy (33 per cent). 

The International Energy Agency (IEA) welcomed the new National Energy Policy aiming to reduce energy consumption and improve the economy’s energy intensity. Yet, the IEA noted how coal is still the largest source of carbon emissions and poses a substantial threat to local air quality. Energy intensity in the Czech Republic, driven by the industrial sector, is higher than either the IEA average and the IEA Europe average.

“So far, the Czech Republic is compliant with the EU targets,” Josef Kotrba, Chairman of Deloitte’s Czech office tells CEENERGYNEWS. “However, the future presents a huge challenge with still large dependency of the energy mix on coal-fired power plants.”

“We are basically in the next worst situation after Poland. And compared to Germany – which originally came from a comparable situation – we have little space in wind energy.”

Following the European Green Deal, the government announced a gradual phasing out of mining by 2030 at the latest. And, after fifty-three years of operation, the 440 megawatts (MW) Prunéřov I coal power plant is now shutting down

“Year-on-year, ČEZ has already shut down 500 MW of coal-fired units,” said Daniel Beneš, Chairman of the Board and CEO of Czech utility company ČEZ, owner of the plant.

However, the location could continue to be used as coal regions can play an active role in the energy transition. Otakar Tuček, director of the Tušimice and Prunéřov power plants mentioned the possibility of taking into consideration a steam-gas cycle or a conventional gas boiler room. 

“Other possibilities include solar parks on the plots of land left after the demolition work, for example instead of the cooling towers,” he said. “Various battery storage sites for electricity, large hot water storage tanks, have also come under consideration.” 

It seems that the coal phase-out could concretely happen within ten years. But the country still cannot renounce to nuclear power. 

Holding onto nuclear

There is not much consensus around the role of nuclear in the future European energy mix. In Germany, all nuclear power plants are supposed to be shut down by 2022, followed by Italy and Belgium. Others, such as France, the United Kingdom and some of the Central and Eastern European countries (the Czech Republic, Slovakia and Hungary) want to hold onto nuclear power and build new reactors. 

Dukovany nuclear power plant.
Source: ČEZ.

At the beginning of June, the Czech government confirmed to provide a loan to ČEZ to cover 70 per cent of the cost of building a new unit at the Dukovany nuclear power plant, with the majority state-owned power company financing the remaining 30 per cent.

“A new nuclear power source is necessary to ensure the energy self-sufficiency of the Czech Republic and to ensure a stable and affordable source of electricity,” said Deputy Prime Minister and Minister of Industry and Transport Karel Havlíček.

A point of view shared by the United States. In his latest visit to Central Europe, United States Secretary of State Mike Pompeo spoke about the importance of increasing energy security for the Czech Republic and for the entire region, whether that’s liquified natural gas or a power plant that has a model that is a western model. 

“Concerning the nuclear energy, of course, we see the interest on the American side,” said Prime Minister Andrej Babiš during a press conference. “But now we are just notifying the EU. There are some rules to be respected. In the past, I already appreciated and hoped that the American producer will be able to produce the modular blocks, more flexible reactors that would be more effective and more efficient. So the tender is under preparation.”

Can renewables replace fossil fuels?

As Mr Kotrba underlines, nuclear won’t be the only contributors to the country’s energy transition, but also renewables, especially solar power, are needed. The use of renewables increased from only 2 per cent of its total primary energy supply in 2000 to about 10 per cent in 2017.

Although renewables should fully replace fossil fuels in the long-term, a study presented by Czech gas transmission system operator Net4Gas is highlighting numerous challenges on the way. For Mr Kotrba, there are three major challenges.

“The first is strong opposition towards solar energy resulting from the ill-managed expansion in 2009-2010 when the government committed huge support for then expensive resources,” he says. “Now, when the solar energy is relatively cheap the government is fighting against it based on huge past costs. The second is the opposition of namely german-speaking neighbours against nuclear energy. And last is the central district heating which is far more widespread than in most of other EU countries and still heavily coal-dependent.”

“To be honest, I can’t imagine the Czech energy mix without nuclear sources in horizon comparable to Germany.”

In particular, today, fossil fuels are the dominant source of energy in transport (93 per cent), industry (58 per cent) and household space heating (46 per cent).

“As one of the important car makers the country (with Skoda Volkswagen) we will certainly be a part of the trend towards e-mobility, although slower than in Western Europe, namely because of slower turnover of cars in the Czech market,” continues Mr Kotrba. 

Although most of the aspects of the energy transition are positive, such as photovoltaics, which already now produces relatively cheap energy, some others will be burdensome for the Czech Republic. 

“The country is still an important steel producer,” highlights Mr Kotrba. “At this point, it is quite likely that the EU decarbonisation policies may lead to the replacement of local production by imports from third countries with no restrictions on CO2 production which would, in the overall effect, not only harm European producers but also increase global CO2 emissions by increased transportation costs.”

The dual role of the energy infrastructure 

The Czech Republic is also an important energy hub with most of the electricity and natural gas supplies to Europe coming exactly from this country. 

Czech Transmission System.
Source: Net4Gas.

“Until the late 1990s, the transit corridor through Ukraine, Slovakia and the Czech Republic/Austria was the only export route for Russian natural gas to Europe,” recalls Zuzana Kucerova, Net4Gas spokesperson. “In 1999, the YAMAL pipeline through Poland started operation, denoting the starting point for the partial shift of Russian gas export to new routes. This trend continued in 2011-2012 with the implementation of the Nord Stream pipeline project through the Baltic Sea and its connection to the Czech gas transmission system via the OPAL pipeline in Germany.”

Currently, Net4Gas is implementing the Capacity4Gas Project, the objective of which is to build new gas infrastructure and to connect it to the current Czech transmission system and the EUGAL pipeline in Germany and thus enhance the security of gas supplies in the Czech Republic and in the entire CEE region. 

“The project increases the transmission capacity for the needs of gas supplies to the Czech Republic and further transit via Slovakia,” Mrs Kucerova tells CEENERGYNEWS. 

Such infrastructure can also have another use, with the growing demand and interest in hydrogen. 

Earlier in July, following the Hydrogen Strategy unveiled by the European Commission, a group of eleven European gas infrastructure companies, including Czech Net4Gas, have presented a plan for a dedicated hydrogen transport infrastructure.

“Hydrogen is currently considered as one of the most promising energy carriers in the mid and long term perspective,” says Mrs Kucerova. “Net4Gas and other TSOs in Europe are therefore dealing with the questions on how hydrogen can be blended into the existing gas flows in the mid-term perspective and whether in the long run, a dedicated European hydrogen pipeline system could emerge, for example, by retrofitting existing high-pressure gas pipelines.”

The Czech gas transmission system has three major branches consisting of double or even triple pipelines. The system offers the possibility to dedicate one of these pipelines to hydrogen. By 2040, one of the pipelines on the northern branch could become available for pure hydrogen transport and it can connect Germany to Slovakia and serve as (one of) the entry point(s) to central Europe. Due to the system reversibility, the Czech Republic could also become an entry point for hydrogen sourced at distance eastern markets.

The TSOs’ initiative foresees a hydrogen network of 23,000 kilometres by 2040, 75 per cent of which might consist of converted natural gas pipelines, connected by new pipeline stretches.

“We need to stress though that we are at the very beginning of this development and further analysis still needs to be made,” adds Mrs Kucerova.

“We also have to stress that natural gas will still play an important role in the European decarbonisation efforts, for example, through the expected coal-to-gas switch.”

With hydrogen, a new chapter for renewables would start, as it would help to produce energy when the sun does not shine and the wind does not blow. 

“We believe that while establishing the correct mechanism whereby all sources and energy carriers are able to compete with each other on a level playing field, gas infrastructure and renewable and decarbonised gases including hydrogen have the potential to contribute to achieving energy efficiency targets, increasing the security of supply and achieving decarbonisation,” concludes Mrs Kucerova.

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