Association for Foreign Investment

2009/01/26, What you need to know about energy regulation in the Czech Republic

Operation in the Czech energy sector is relatively well governed by a legislative framework that defines the rights and responsibilities of business entities operating in the energy market, as well as the rights and responsibilities of consumers. European Union requirements have also been incorporated into the national regulations. Act No. 458/2000 Coll., on Business Conditions and Public Administration in the Energy Sectors (the Energy Act), and Act No. 406/2006 Coll., on Energy Management, can be seen as the fundamental bases of this legislative framework. Specific aspects of these energy norms are outlined in the following text.

The Czech market is also governed by the Energy Regulatory Office, which issues price decisions in relation to both of the aforementioned acts and decrees for the purpose of ensuring economic competition, use of renewable and secondary sources of energy and protection of consumers’ interests in those areas of the energy sectors where competition is not possible. An overview is available on the office’s website at www.eru.cz.

Act No. 458/2000 Coll. (the Energy Act)

This act has been amended eight times. Three of the amendments involved only minor modifications related to other legal regulations, and one amendment – Act No. 278/2003 Coll. – changed the process of opening the electricity market. With respect to scope and significance, the amendment under No. 670/2004 Coll., by which the new Directives of the European Parliament and Council No. 2003/54/EC, No. 2003/55/EC, on Common Rules for the Internal Market in Electricity and Natural Gas, and No. 2004/8/EC, on Promotion of Cogeneration of Electricity and Heat, was particularly important. The current wording of Act No. 458/2008 Coll. reflects the regulations in force in the European Union until the time of its passage. The act is thus based on the same principles of the European Union’s energy legislation.

New amendments to the Energy Act, which are formulated in the draft, are currently under debate. These amendments are in response particularly to the Directive of the European Parliament and of the Council No. 2006/32/EC, on Energy End-Use and on Energy Services and on the Repeal of Council Directive No. 93/76/EEC; No. 2005/89/EC, on Measures to Safeguard Security of Electricity Supply and Infrastructure Investment; No. 2004/67/EC, on Measures to Safeguard Security of Natural Gas Supply; and Regulation of the European Parliament and of the Council No. 1775/2005 on Conditions of Access to the Natural Gas Transmission Networks, which have not yet been incorporated into our legislation.

Proposals to amend the act also derived from the experience of participants in the electricity and natural-gas market as well as the state administration with application of the act’s provisions and are aimed at remedying deficiencies or clarification of the text so that it can be more simply and unambiguously applicable. The amendments also concern simplification of the licensing procedures and processes related to entry into business in the energy sectors, establishment of new energy capacities, application of measures in the case of non-standard operating conditions of the energy system, etc.

Act No. 406/2000 Coll., on Energy Management

The purpose of the Energy Management Act is to increase energy efficiency in the production, transmission, distribution and consumption of energy and storage of gas, including related activities. The act also sets forth the responsibilities related to handling energy, performance of energy audits and, among other things, regulations for creation of the State Energy Policy, the National Programme of Economical Energy Handling and use of renewable and secondary sources of energy. The act also sets forth the obligations pertaining to cogeneration of electricity and heat and labelling of appliances, and the obligations of builders and owners of buildings regarding energy management, whereas particular attention is focused on the obligations of operators of state and municipal properties. Furthermore, this act outlines the obligations concerning the inspection of boilers burning liquid, gas or solid fuel ad 200 kW and inspection of air-conditioning systems. The obligation to process permits for energy consumption in buildings with floor space greater than 1,000 m? is also newly defined in the act.

Among other things, the following obligations and requirements are formulated in this act:

• Producers of electricity or heat are obligated to ensure at least the minimum efficiency of energy consumption set forth in the implementing legal regulation in newly established power or heating plants.
  
• In the case of newly established heating distribution facilities and internal heating systems, owners or operators of heating distribution facilities and owners of internal heating and cooling distribution systems are obligated to ensure the efficiency of energy consumption and of distribution equipment and internal heating and cooling distribution systems in the scope stipulated by the implementing legal regulation.
  
• Each producer of heat with common source performance greater than 5 MWt is obligated, in the case of building new sources or changing the final structure of existing sources, to subject the construction documentation to an energy audit from the perspective of introducing electricity generation.
  
• Each producer of electricity from thermal processes with common source performance greater than 10 MWe is obligated, in the case of building new sources or changing the final structure of existing sources, to subject the construction documentation to an energy audit from the perspective of introducing heating supply. In the case of using gas turbines, this obligation relates to performance greater than 2 MWe and, in the case of using combustion engines, to performance greater than 0.8 MWe. 
  
• Builders or owners of buildings must ensure fulfilment of the given building’s energy-efficiency requirements and fulfilment of the comparison indicators stipulated by the implementing legal regulation, and fulfilment of the requirements set forth by the relevant harmonised Czech technical norms. The implementing legal regulation stipulates the energy-efficiency requirements for buildings, the comparison indicators, method of calculating the energy-efficiency of buildings and details relating to fulfilment of these requirements. In the case of changes made to existing buildings, requirements are fulfilled for the entire building or for changes in systems and building elements.

Act No. 180/2005 Coll., on Promotion of the Use of Renewable Sources of Energy

The purpose of this act is to promote the use of renewable sources of energy, specifically wind, solar and geothermal energy; hydropower; soil, air and biomass energy; landfill gas, sewer gas, and biogas. The act is aimed at continually increasing the ratio of renewable sources to primary sources of energy, conservation of natural resources and fulfilment of the indicative target of an 8% proportion of electricity from renewable source in the gross consumption of electricity by 2010.

Support relates to the production of electricity from renewable sources produced by facilities in the Czech Republic using renewable sources and is stipulated variously according to the type of renewable source, size of installed performance of the facility and, for example, according to biomass parameters. Support also relates to the production of electricity from mine gas extracted from closed mines.

Furthermore, the act sets forth the rights and responsibilities of entities on the market in electricity from renewable sources, conditions of support, purchase and documentation of production of electricity from renewable sources, stipulation of prices for electricity from renewable sources separately for individual types of renewable sources and green bonuses, the method of regular evaluation of the ratio of production of electricity from renewable sources to the gross consumption of electricity for the past calendar year and calculation of anticipated impacts of support on the overall price of electricity for the end-consumer in the subsequent calendar year.

Legislation in the area of cogeneration of heat and electricity

It is first necessary to state that the cogeneration method of production has a long tradition in the Czech Republic, which is reflected in the country’s energy policy in the area of cogeneration of electricity and heat. It is shown in this policy that it is necessary, in accordance with EU Directive No. 2004/8/EC, on the Promotion of Cogeneration of Electricity and Heat, to ensure its fulfilment, particularly through new regulations and expansion of the Energy Regulatory Office’s competence, including possible preparation of a separate Act on Promotion of Cogeneration of Electricity and Heat thus:

• Preserve the existing principle of priority connection to the transmission or distribution network and the right of priority traffic of the transmission or distribution network.
  
•  In the initial period, preserve the principle of mandatory purchase of electricity and heat with regulated supplementary pricing.
  
• According to the results of conducted analyses, and if in the European Union there is a unified approach to promotion of cogeneration of electricity and heat, adapt the support system in the Czech Republic to such unified system.

Support or cogeneration is embedded in the Energy Act and the Energy Management Act. Also enacted is the process for issuing certification of the origin of electricity from cogeneration, and the method of determining the amount of electricity from cogeneration of electricity and heat is also set forth. A system for supporting the purchase of electricity from cogeneration via price regulation has been implemented by the Energy Regulatory Office on the basis of the energy legislation in force. Complete information on all current legislative regulations in the area of energy in the Czech Republic is available on the website of the Ministry of Industry and Trade at www.mpo.cz.

For investment in the Czech Republic, the following can be generally stated with respect to economical energy use:

• Conditions for realisation of structures or energy-generation systems in the Czech Republic are generally defined by the Building Code.
  
• Within the licensing system it is necessary to also fulfil the conditions ensuring the efficient use of energy in the area of its production and distribution, as well as in the area of consumption. Specific conditions are unambiguously defined in all degrees of legislation – in acts, implementing regulations and decisions.
  
• From this perspective, licensing criteria are focused primarily on optimisation of consumption of primary energy resources. In the case of construction of new buildings and complexes, emphasis is placed on aspects of such buildings’ thermal-technical properties, efficient heating and air-conditioning systems and lighting systems.
  
•  In the case of construction of heat and electricity sources, cogeneration of electricity and heat is preferred. Of course, this is conditioned by the attainability of useful heat supplies. Depending on the type of fuel burned, all sources must achieve the stipulated energy-efficiency values.
  
• Effective use of renewable sources of energy is a priority supported by the state in the form of preferential purchase prices and, in the case of fulfilment of the stipulated conditions, often in the form of financial aid for construction.

Thus, it can generally be stated that the Czech Republic has established a stable system of conditions for construction of new buildings or systems with respect to ensuring the efficient use of energy that fully respects EU regulations. 

Miroslav Mareš,
Managing Director, Tebodin Slovakia,
Deputy Managing Director, Tebodin Czech Republic

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