New financing options for renewables in Czechia: up to 30 billion annually from 2021

On 8 November, the Chamber of Deputies approved an amendment to the Emissions Trading Act. Among other things, it introduces the main rules for the operation of the so-called Modernisation Fund, which from 2021 is expected to provide around CZK 15-20 billion annually for investments in renewables, energy efficiency and greenhouse gas emission reduction measures.

The Modernisation Fund will be created by setting aside a certain number of allowances from the EU ETS market. Their monetisation, which will take place through the European Investment Bank, will generate funds that the bank will subsequently channel to projects leading to CO2 emission reductions in the EU's 10 poorest countries (Czechia narrowly made it into this group of 10).

Under the approved Czech amendment to the EU ETS Act, the Modernisation Fund will include not only funds allocated for these purposes by the European Union, but also funds generated from allowances that would otherwise be allocated to the energy industry under so-called derogations (i.e. free allowances in exchange for investments made in the previous year). The fund will also include half of the so-called solidarity allowances, which poorer EU countries can otherwise auction.

Most funds for EU ETS entities

The size of the fund will depend on the price of allowances, as the funds will be generated through the monetisation of EU ETS allowances. Depending on allowance price movements, it could therefore amount to between CZK 130-200 billion over the 2021-2030 period. Up to 70% of the funds should go towards decarbonising sectors covered by the EU ETS.

The Ministry of the Environment, which submitted the proposed amendment, sees considerable emissions reduction potential in district heating, the power sector (where the transition to renewables will be financed in particular) and emissions-intensive industry. However, the fund will be designed to finance a broad range of projects by both legal entities and individuals. The condition is that emissions must be reduced and no coal may be combusted at the facility. Specific rules for the Modernisation Fund will not be developed by the ministry until next year.

Renewables will not be financed solely by the Modernisation Fund

What financing options for renewables will be available from 2021? In addition to the Modernisation Fund, climate protection measures, including investments in renewables, will be financed from the sale of allowances at auctions. Under the law, part of the revenues must go towards climate measures in order to comply with the rules of the European EU ETS directive. Additional funds will come from EU operational programmes, particularly the renewed Operational Programme for Competitiveness. However, the exact amount that will be available is not yet known.

Financing for renewables will be crucial to meeting the targets Czechia has committed to in this area. Under the energy and climate plan, Czechia will have to generate 22% of its energy from renewables in 2030. For example, in the heating and cooling sector, the share of renewables must increase to 1% (the European Commission had required 23 and 1.1%).