Czech ministry revises capacity mechanism rules. Additional auctions may be moved to 2027

The Ministry of Industry and Trade has published a draft amendment to the rules of the Czech capacity mechanism. Two extraordinary additional auctions are to be moved from 2026 to 2027, but the draft also makes much more far-reaching changes to how the mechanism works. It clarifies the rules for extending the preliminary assessment, allows capacity units eligible for a 15-year contract to compete in multiple auctions simultaneously, and changes the design of the demand curve and some participation requirements. The draft is not yet final; comments can be submitted until 30 October.

The Ministry of Industry and Trade published the draft amendment on 15 October, just around two months after the capacity mechanism itself was introduced. The ministry says the changes are needed to clarify the mechanism’s conditions, strengthen legal certainty for participants and adapt the rules to practical implementation.

This is not simply a response to the already announced extension of the preliminary assessment. The draft amends twenty specific provisions of the original measure and also instructs ČEPS on how to apply the new conditions to a process already under way.

Additional auctions not until 2027

The original general measure stipulated that two extraordinary additional auctions, Y-4 and Y-5, would take place in 2026. The draft now changes this single date to 2027. The structure remains the same: one auction is to be held four years and the other five years before the start of the relevant delivery period. The Ministry of Industry and Trade’s draft amendment makes this change explicitly by replacing 2026 with 2027.

However, it is important to distinguish between additional and main auctions. On this point, the draft does not change the general rule that the main auction is held six years before the start of delivery. The document itself therefore does not imply that all the auctions originally planned will automatically be shifted to the beginning of 2027. The specific timetable will need to follow the final wording of the general measure and the updated ČEPS rules.

A newly introduced rule on any further extension of the preliminary assessment may prove more significant. ČEPS will be able to extend the deadline only in predefined and objectively justifiable circumstances. The draft explicitly gives the risk of falling below the minimum level of competition and a material flaw in the process itself as examples. In its reasoning, the ministry stresses that an extension should be an exceptional tool, not a routine option for changing the timetable.

Changes will also affect applications already submitted

For current participants, the transitional provision may be even more important. The ministry proposes that the amended capacity mechanism rules should also apply to preliminary assessments that are under way when the changes take effect. ČEPS must also allow participants a reasonable period to supplement applications already submitted and provide documentation needed to meet the new requirements.

This is especially significant given how many companies have already mobilised project teams, lawyers, advisers and banks to arrange financial backing under the original, very tight timetable. The rule change is therefore not intended to mean that applications submitted earlier will automatically be assessed under a different regime without an opportunity to respond.

At the same time, the draft as a whole significantly strengthens the requirement for legal certainty. If ČEPS changes the rules in the future during a preliminary assessment, an announced auction or a contract that has already been signed, it will now have to explicitly specify when the change takes effect and take into account participants’ legitimate expectations and equal treatment.

15-year contracts will offer greater flexibility

One of the most economically significant changes concerns capacity units eligible for a 15-year contract. They will now be able to submit bids in several auctions simultaneously. If a bid succeeds in one auction, the corresponding bids in the other auctions will be rejected. ČEPS must also prevent the same capacity from being counted twice.

This is an important change for investors. For example, a project will no longer have to put all its eggs in one basket by committing to a single delivery horizon before the results of individual auctions are known. This may be particularly useful for capital-intensive projects whose delivery dates depend on grid connections, permitting or technology availability.

The ministry itself says in its reasoning that the aim is to increase participants’ flexibility while preventing excessive procurement of capacity. If several auctions take place in the same calendar year, each subsequent auction is to take account of the capacity that succeeded in an auction with an earlier delivery start, even before the capacity contract itself is signed.

A third point added to the demand curve

The auction design itself is also changing. Under the original measure, the price-elastic demand curve had two mandatory defining points: the price cap and the point corresponding to net CONE (Cost of New Entry).

The draft adds a third point, corresponding to a zero price and the maximum volume of capacity. It also stipulates that the maximum volume procured at the auction price cap will be set as a percentage of the volume being auctioned.

According to its reasoning, the ministry wants to clarify the auction algorithm while retaining the ability to respond to the actual volume of supply identified during the preliminary assessment. The aim is to avoid procuring more or less capacity than is actually needed to meet the reliability standard.

The change to the bid cap is also notable. The original general measure linked it to an “existing capacity unit”. The parameter is now to be defined for capacity units eligible only for a one-year contract. The criterion will therefore not simply be the age of the generating unit, but its eligibility for a particular capacity contract duration.

Public support rules clarified, basic principle unchanged

The draft does not bring a fundamental change to the rules on the cumulation of public support. The existing rule remains: a generating unit entitled to operating support must permanently relinquish it when entering the capacity mechanism. Under certain conditions, the support registration can be cancelled regardless of whether the unit ultimately secures capacity in the auction.

However, the draft explicitly addresses the situation of new facilities that are not yet registered in the market operator’s system. Their future operator must declare that it will not register its entitlement to the relevant operating support in the future.

There is also an administrative simplification for 15-year contracts. The threshold for eligible investment costs and the incentive-effect requirement remain unchanged, but applicants will now be able to demonstrate both eligible investment costs and the incentive effect through a sworn declaration.

ČEPS to cover availability test costs, transfers made more flexible

Another practical change explicitly specifies who will bear the costs of an availability test. The operating costs associated with the test will now be paid by ČEPS. The main test parameters remain largely unchanged: the test can be announced no more than 24 hours in advance, failure to pass it results in a penalty equal to 10% of the availability payment, and both generation and demand capacity must be able to achieve the required change in output within 3.5 hours.

Greater flexibility in transferring part of a capacity obligation should also be noted. The original measure allowed partial transfers in minimum increments of 1 MW. The minimum amount will remain 1 MW, but further changes can now be made in increments of 0.1 MW.

Amendment to take effect immediately

The proposed effective date is also rather unusual. Normally, a general measure would take effect on the fifteenth day after publication. The ministry, however, proposes that the amendment take effect on the day it is published.

The ministry justifies this on the grounds of the public interest in the secure operation of the electricity system, explicitly stating that delays in securing capacity auctions could seriously jeopardise system operation.

This passage neatly illustrates the current situation facing the capacity mechanism. On the one hand, just a few months after issuing the initial rules, the state is clarifying them significantly and seeking to broaden competition. On the other, it is also declaring that action is needed quickly, because it considers further delays a potential risk to security of supply in the future.