Czech energy regulator issues new pricing decision for district heating

The Energy Regulatory Office (ERÚ) issued a new pricing decision for the district heating sector last week, which will enter into force on 1 January next year. The new pricing decision follows last year's amendment to the pricing decision, when ERÚ responded to changes in the heat energy market and sought to prevent mass disconnections from district heating (CZT). It considers district heating to be the most environmentally efficient option, and preserving the systems is therefore in the public interest.

As ERÚ stated in an accompanying document for the consultation process on its new district heating framework, which it outlined last year, the aim of the updated framework is to respond to the current situation in the heat energy market and to market needs.

The current situation is defined by increasing competition in the market and the option of choosing another source of heat energy, which in some cases leads to customers disconnecting.

The new pricing decision therefore, for example, regulates the possible division of pricing areas, with larger pricing areas expected to be less susceptible to price fluctuations caused, for instance, by major repairs.

“Making the calculation procedure more precise and transparent is essential not only for consumers. Our office also needs unambiguous data if it is to carry out price inspections effectively, with clear outcomes, and prevent protracted disputes that often ended up in court. Last but not least, a more precisely described calculation will also help district heating operators. It will strengthen their confidence that they will not face our objections and sanctions if they follow the prescribed procedure,” says Stanislav Trávníček, chairman of the ERÚ Board.

ERÚ also defines the procedure for setting a reasonable profit, which had been lacking in the past. The calculation of reasonable profit is linked to the acquisition value of assets, which is then indexed.

“By reasonable profit, we must understand reasonableness on both sides. On the one hand, we ensure that it does not deviate in any way from the average in regulated sectors. On the other hand, we need to maintain the necessary investment in the sector,” Stanislav Trávníček explains.

Emission allowances

ERÚ now views emission allowances, as it states in the accompanying document, as a fuel cost that can be included in the price of heat energy (in the past, the level of this economically justified cost was limited). Emission allowance prices have repeatedly reached new highs this year, also due to the EU's more ambitious climate policy.

The cost of emission allowances is currently paid by plants with a thermal input of 20 MW or more. However, under its plans presented on 14 July this year, the European Commission plans from 2026 to introduce a second CO₂ emissions trading system, which would cover, among other things, smaller heat sources with an input of up to 20 MW. On the one hand, this would level the playing field, but on the other it would very likely lead to higher heat prices even in smaller district heating systems, an outcome to which many EU member state ministers objected.

Given commodity price developments, such as those for natural gas and coal, substantial increases in heat energy prices can nevertheless be expected in the coming years, despite regulatory interventions by ERÚ.