Third renewable energy support auction launches in Czechia, lower market electricity prices may spur interest

The Ministry of Industry and Trade has launched the third auction to support renewable energy sources in the Czech Republic. The auction for wind farms, small hydropower plants and the modernisation of biogas plants has a total capacity of 72 MW. So far, auctions have awarded support for 20 MW of wind capacity.

The first auction of this year will offer support for twice as much wind capacity as last year. The ministry will offer support for up to 60 MW of new wind turbines. As in the previous year, the ministry has also launched auctions for small hydropower plants and biogas plants.

For small hydropower plants, bids may be submitted for the modernisation of an existing hydropower plant or for the construction of a new one. In the case of biogas plants, support can only be obtained for the modernisation of existing facilities.

Ministry leaves maximum support level unchanged

The ministry has not changed the maximum level of support that applicants may request. The price caps for the auction were significantly increased between the first and second auctions in order to make the auctions more attractive. While the higher prices attracted the first two projects in the case of wind farms, the other auctions remained empty in the second round as well.

For wind farms, bidders can therefore compete for up to 3500 Kč/MWh (approx. 146 EUR/MWh), for the modernisation of biogas plants up to 4000 Kč/MWh (approx. 167 EUR/MWh), and for the modernisation and construction of new hydropower plants up to 4500 Kč/MWh (approx. 188 EUR/MWh).

Successful auction participants will receive support in the form of a so-called contract for difference (CfD). Under this mechanism, the producer is guaranteed to receive the price it requested in the auction for the electricity generated, as it receives the price from selling electricity on the day-ahead market plus an auction premium that makes up the difference to the reference auction price.

Conversely, if the day-ahead market price is higher than the price requested by the producer in the auction, the producer is obliged to pay the difference between the day-ahead market price and the requested level of auction support (the reference auction price) back to the market operator.

Section 11(8) of the Act on Supported Energy Sources: "In the case of ... an auction premium, where a higher hourly price than the reference auction price is achieved, entitlement to support does not arise in that hour and the producer is obliged to pay the difference between the hourly price and the ... reference auction price to the market operator."

Awarding support through auctions has only been possible in the Czech Republic since January last year. Although many experts expected this new arrangement to accelerate renewable energy deployment, the auctions have so far failed to meet expectations.

Last year's auctions attracted no interest, support remained unused

The volume of installed capacity eligible to receive support through auctions each year is set annually by the government in a decree covering the following three years. For last year, the Ministry of Industry and Trade launched auctions for 30 MW of wind capacity, 5 MW of plants using biogas and 7 MW of small hydropower plants. Applicants submitted bids for only 20 MW in the wind farm auction. There was no interest in the remaining support.

The slow start of the auctions can primarily be attributed to a lack of projects in the Czech Republic that can be implemented within the timeframe required by the auction. Under the terms of last year's auction, generating facilities had to be commissioned by the end of 2026 (whereas participants in this year's auction have until the end of 2027). Following a long period during which support for new large renewable energy facilities was virtually abolished, there were very few projects that could be completed within the required timeframe.

However, last year's high electricity prices on both day-ahead and forward markets, and producers' related higher expectations regarding the prices that could be offered under PPA contracts, may also have contributed to the lack of interest. By contrast, prices on spot markets are substantially lower this year. Those planning to build wind farms may therefore now be more motivated to participate in auctions, which guarantee them a stable price for the electricity generated.