Czech Energy congress: Transformation of the energy market, part 2

In the first part of this summary of the Energy Congress, held in Prague on 18 April, Václav Bartuška's view of the current situation was outlined. It showed that, in the context of the current geopolitical situation, Czechia and the EU will have to reduce the bureaucratic burden on the construction of new generation sources in order to manage the current situation and, for example, prevent the collapse of industry in the EU. The second part covering the energy conference will address the energy transition itself and further explore the question: “What role should the state play in energy?”

What will the energy sector face in the coming years?

Before looking at the conference participants' answer to the question, “What role should the state play in energy?”, it is necessary to briefly summarise how independent institutions view the current situation and future developments in the energy market. At the conference, this task was undertaken on behalf of ČEPS, the operator of the Czech electricity transmission system, by Martin Durčák, chairman of the board.

Martin Durčák presented the results of a recently published ČEPS study and explained the assumptions on which the company can base its outlook. ČEPS prepared four scenarios for market development and supply-demand balance. The first key parameter is the electricity consumption outlook. The steep increase in electricity consumption in Czechia from the current 60-62 TWh to 83-112 TWh in 2040, with the highest consumption figure reached in the most decarbonisation-focused scenario, is driven by the development of electromobility and heating with heat pumps. The 2040 consumption figure also includes maintaining the current level of industry! Martin Durčák added that if Czech industry is to be preserved as it is today, electricity consumption will necessarily rise sharply as a result of decarbonisation.

The “greenest” scenario (called the Decarbonisation Scenario) assumes a complete coal phase-out in 2030 and that, by the same year, Czech district heating will largely switch to gas. However, it is worth recalling the EU's continuing reluctance to sign long-term contracts for LNG (liquefied natural gas) supplies, as well as the fact that other parts of the world will also increase their natural gas consumption. This could lead to high price volatility and, consequently, volatility in heat and potentially electricity prices.

What would a coal phase-out in 2030 look like, how would it affect Czechia's energy sector, and what are ČEPS's other assumptions for this situation? In the Decarbonisation Scenario, ČEPS assumes the following situation in 2040: electricity consumption of 112 TWh, 3 mil. electric vehicles, 1.5 mil. heat pumps, and 20 GW of installed PV capacity (15 GW in 2030). The new Dukovany unit should also be commissioned in 2036. As Martin Durčák notes, ČEPS cannot include sources that are not currently commercially proven in its forecasts, such as small modular reactors.

What will replace coal?

A coal phase-out in 2030 would therefore mean that Czechia would not be able to cover its consumption at times when, simply put, “the wind is not blowing and the sun is not shining”. The development of renewables, especially PV in Czechia, will cause electricity prices to fall during the hours when these sources are generating. Their variable costs are very low, after all, making it worthwhile for them to supply electricity practically whenever the market price is positive.

From the perspective of the overall annual balance, this will reduce the potential utilisation of the installed capacity of dispatchable sources, such as gas-fired combined-cycle power plants, as they will be pushed out of the market due to their higher variable costs. For investors and private entities, this represents a significant risk from the perspective of project economics, given the associated high capital costs. This brings us back to the question: “What role should the state play in energy?”

In the Decarbonisation Scenario, ČEPS assumes that in order to achieve 90% energy self-sufficiency in 2030 (a figure derived from Czech strategic documents), it will be necessary to install approximately 2800 MW of dispatchable capacity! According to ČEPS, its assumed low utilisation rate will not cover investment costs. However, the views of entities operating in the energy market differ on this point, and individual companies expect different market developments, as will be outlined in the next part covering the energy conference. The main variables are estimates of the pace of decarbonisation, further possible changes to the legislative environment, electricity consumption trends and others.

From ČEPS's perspective, it is in any case necessary to introduce capacity mechanisms. The necessary approval processes, including notification, may take up to 5 years. According to conference participants, the processes have already begun. Construction of a larger source, such as a gas-fired combined-cycle power plant, may then take another 5 years. From ČEPS's perspective, the solution is therefore coming at the last minute.