René Neděla (Ministry of Industry and Trade): We are fully aware of the challenges of coal phase-out in the Czech Republic

Recent media reports have pointed to an earlier coal phase-out in the Czech Republic. Originally, coal was expected to end around 2033, but 2028 is now even being discussed. The main reason is simply that coal is no longer profitable for operators. This may raise concerns about ensuring the security of heat and electricity supplies.  

In connection with the end of coal, the Ministry of Industry and Trade has begun preparing for a “managed coal phase-out”. What this concept entails and how the ministry approaches the end of coal in the Czech Republic will be presented in the following interview with René Neděla, Director General of the Energy and Nuclear Sources Section.

How will the managed coal phase-out proceed, and what should be understood by this term?

The phasing down of coal-fired sources, particularly those primarily generating electricity, is determined mainly by the economics of their operation. However, it is important to create mechanisms to ensure that any phase-down takes place primarily with regard to the security of electricity system operation. The aim is therefore to set conditions so that sources whose operation may be critical to the secure operation of the electricity system and to ensuring sufficient electricity supplies throughout the year are not shut down in an uncontrolled manner.

Will the managed coal phase-out require legislative changes, and do you expect opposition from the European Commission?

Yes, in this regard we propose to enshrine in legislation information obligations for operators if they decide to terminate or suspend operations over the long term, as well as a mechanism allowing a partial postponement of the phase-down under exceptional circumstances where necessary. Beyond this, it is also necessary to introduce mechanisms that will support the construction of new sources to take over coal’s role, both in terms of generation and the availability of balancing energy and other services necessary to ensure transmission system operation.

The Czech Republic had the option, following the example of other Member States that generate large amounts of electricity from fossil fuels, to negotiate an exemption allowing support for these sources through capacity mechanisms. Why was this option not used?

At that time, the Czech Republic was in a different position, and the situation in the European electricity market was also different. With very cheap emissions allowances and low generation costs from domestic lignite, the Czech Republic exported relatively large volumes of electricity, and resource adequacy outlook scenarios did not indicate significant problems. It should therefore be said that not only was the Czech Republic an advocate of the most liberalised possible electricity market, in which subsidised fossil-fuel sources in neighbouring countries would result in unfair market-based generation, but there were also insufficiently strong arguments at the time for introducing a capacity mechanism in the Czech Republic that would have enabled the European Commission to approve state aid.

Which sectors will be most affected, and with whom do you need to hold discussions on the end of coal in the Czech Republic? Is it only ČEPS and operators of coal-fired power plants, or are there other key stakeholders?

This primarily concerns operators of coal-fired sources, both electricity and heat generation facilities. ČEPS is, of course, also an important player given its responsibility for the secure operation of the electricity system. Industry associations and consumers of electricity and heat are also actively interested in the coal phase-down because of its potential impacts on them.

How are the stabilisation of the transmission system and sufficient heat supplies during the winter months being ensured?

A number of mechanisms already exist to stabilise the electricity system, in particular so-called power balancing services. However, these naturally rely to a large extent on existing sources. As I have said, work is under way to introduce a notification obligation and a potential instrument to defer the phase-down of a given source, particularly where the operation of a specific source is necessary to ensure electricity system operation.

Currently, changes in economic fundamentals, particularly electricity, natural gas and allowance prices, are primarily affecting sources that generate electricity, namely power plants. In the case of coal-fired heating plants, a transition to alternative sources is also continuing, with significant public support, and this should be completed for the vast majority of facilities by around 2030.

It has been known for at least 10 years that coal will eventually end. Do you consider this to have been sufficient time for entities using coal to prepare?

Yes, in a certain sense we believe that entities have had sufficient time to prepare for the transition, and a relatively large amount of public funding has been allocated for this purpose. At the same time, however, we recognise a degree of unpredictability in price developments, which have also been affected by external factors that are difficult to predict, whether in the case of emissions allowances, energy inputs affecting operating economics, macroeconomic factors or geopolitical developments.

The Ministry of Industry and Trade is not responsible only for energy. Have representatives of other sectors, such as industry and construction, also approached you regarding the end of coal?

The Czech Republic has a relatively well-developed segment of so-called industrial plants, meaning sources that supply electricity and heat to specific manufacturing enterprises. The coal phase-down therefore also affects related sectors. Representatives of major electricity and heat consumers are, of course, also interested in these developments because of their impact on the availability and price of electricity. However, it should be said that, particularly given sensitivity to prices, the current development of emissions allowance prices has led to increased interest in the availability of non-fossil electricity and heat sources that are not burdened by the carbon price.

How will the security of electricity and heat supplies in the Czech Republic be ensured as coal’s share in the energy mix declines, and which alternative energy sources will be used?

Alternative sources are already being developed, both renewable sources and, for example, gas-fired sources. Over the longer term, nuclear energy should also largely take over the role of coal-fired energy. The intended mechanisms mentioned above will apply if it becomes apparent that the development of new sources is not sufficient within the given timeframe and it is temporarily necessary to keep coal-fired sources in the system for longer than their economic viability would suggest.

How will the Czech Republic’s energy security be affected as electricity imports from abroad are likely to increase, and what risks and opportunities are associated with this development?

In cooperation with ČEPS, even relatively unlikely scenarios of a rapid coal phase-down occurring alongside other planned or extraordinary and unlikely factors with potential negative impacts have been quantified. These model scenarios show that the availability of electricity in neighbouring markets will remain sufficient for imports into the Czech Republic even in critical scenarios (link).

As regards imports, it can be confirmed that, as expected, the Czech Republic will gradually become a net importer of electricity, meaning that it will import more than it exports on an annual basis. However, it should be noted that a significant share of these imports will be driven by economics, meaning they will come from cheaper sources and have a positive impact on wholesale electricity prices in the Czech Republic. Rising economic imports into the Czech Republic have been a trend in recent years. The availability of electricity needed for these imports is periodically assessed and verified.

It is also necessary to point out that, if the Czech Republic were, for example, to increase its electricity self-sufficiency using gas-fired sources, this would not improve its import dependency; it would merely replace one imported energy carrier with another.

What are the biggest challenges and pitfalls associated with the coal phase-out at the technical, economic, social and legislative levels, and how do you intend to address them?

I have described the main trends associated with this process in the previous answers, which make clear that we are fully aware of the challenges linked to this process and are working to prepare and introduce measures that will guide us through it while minimising risks that could threaten security of supply or cause a dramatic increase in the costs associated with the process.

In short, developments in the current economic situation are negatively affecting the profitability of coal-fired electricity generation sources, namely power plants. Due to the relatively long investment cycle in the energy sector, timing mismatches may arise between the closure of sources and the commissioning of their replacements, also with regard to market incentives for investment in new sources. This requires, among other things, legislative instruments that can, in extreme cases, act as a form of insurance to ensure the safe operation of the Czech electricity system, alongside the parallel introduction of both legislative conditions and investment and operating support aimed at ensuring the deployment of sources that will replace coal-fired sources in both electricity and heat generation.