The Third Phase of Development – EU Membership Through to the Present

Despite all the problems and delays mentioned, the Czech Republic succeeded in joining the Euro-pean Union, boasting of a stable energy market with aggressive energy companies, a number of acquisi-tions abroad and a signifi cant improvement at the level of diversifi cation of energy suppliers. From the beginning of the 1990s, the situation regarding the reduction in the environmentally devastating impact of energy production is incomparable. The signifi cant handicap from the period of the cheap Soviet energy has been improved – low energy effi ciency compared to the consumption of primary sources per GDP unit. Despite this, or rather for that reason, it is useful to take a closer look at the current state of the Czech energy sector.

Energy spending of the Czech Republic is slowly rising over the long term in parallel with declining energy demand. After 2000, the economy grew stronger on average by approximately 4.5 % per year, whereas consumption of resources recorded only 2 % of growth per year. Domestic energy demand is still however about a third higher than the EU 27 average (see Zpráva Nezávislé odborné komise). The situa-tion is nonetheless markedly changing as a result of the continuing global economic crisis, which reduces energy demand – well evidenced, for example, by Czech electricity consumption.

Tab. 2.8: Electricity Consmuption 1993-2012

Source: ČEZ: Energy Sector in the Czech Republic

Although it has made a signifi cant shift to natural gas, the Czech Republic is still dependent on two domestic sources, i.e. nuclear fuel and coal. On the other hand, Czech import dependence is for that reason below the EU average, today a little above 40 % (see Zpráva Nezávislé odborné komise).

As far as the electricity market is concerned, the latter has been completely open since January 1, 2006, and all customers, including households, can choose their own provider. Since the start of the whole process in 2002, 80,000 customers have made use of this opportunity (Ibid., p. 26). Since March 2007, the electricity exchange market has been the most active platform at the local level (Power Exchange Central Europe, previously the Prague Energy Exchange), active also in Slovakia and Hungary. It has in that man-ner quite signifi cantly contributed to the transparency of prices and trading with electricity, while a notable volume of this commodity, however, has remained traded on the basis of bilateral contracts. The price of electricity predominantly depends on the prices of input fuels, their total increasing consumption in the EU as well as expenses related to emission allowances. Prices are of course not centrally decided, but aside from the price of power itself, the price of the fi nal product is in all its further charges (for example, transport) subjected to the regulation of the Energy Regulatory Offi ce.

The gas market has been also open since 2007. The fact that it is a set of eight rather independent sup-ply zones is, however, not particularly advantageous for competition, which is why competition happens primarily when looking for large lucrative customers.

The domestic energy situation is, therefore, stabilized, whether in terms of the facts on the ground, its legislative and institutional modifi cations or in relation to other policies. On the other hand, some new prob-lems are naturally coming to the fore which we must take account of and address in the immediate future.

The fi rst is the issue of the Czech Republic as an important exporter of electric power. Domestic elec-tricity production was already during the Soviet period signifi cantly oversized, due to the country’s pre-vious orientation to the metallurgical industry with its high energy consumption. Because the production capacity was, after a reduction in industry demand in recent years, enhanced by the completed Temelin nuclear power plant, we can from 2000 to 2012 observe a continuous growth in electricity exports (the balance of exports in that period increased from 10 GWh to 17.4 GWh) (see Zpráva Nezávislé odborné komise, p. 14 and Česko loni vyvezlo rekordní množství elektřiny). The Czech Republic is for that reason the second largest net exporter of electricity in the EU after France.

This production, on the other hand, makes great demands for the consumption of domestic energy sourc-es, i.e. coal. It is not moreover clear how long this trend will be sustainable. Even though consumption is in-creasing only very moderately, trouble may arise on the production side, mainly in relation to the obsolescence of production capacity (power plants). The great majority of them date back before 1989 and they are slowly reaching the end of their lifespan. This is however only a Czech phenomenon, as 50 % of nuclear and 70 % of the coal facilities in the EU are older than 20 years (Ibid., p. 13). It is exactly in this where future problems of the European electricity trade may arise, as the space for export of individual countries will markedly derogate.

The situation is, of course, not critical, as the appropriate combination of savings⁴¹, restoration of old and perhaps construction of new sources as well as stress on further increases in energy effi ciency can solve the problem. It, nonetheless, requires long-term planning and various steps taken suffi ciently ahead

41 Iwwn this context, we can compare two perspectives which currently have a signifi cant impact on the debate about the future of the EU and the Czech Republic. According to one, the increase in consumption and obsolescence of sources is a clear indicator of a coming shortage of electricity, which can be solved only by building new power plants, to a certain extent initiated by the state. The opposing perspective claims that high consumption depends on currently rather cheap electricity, which does not force the introduction of the saving measures. Future increasing prices due to electricity shortages will, therefore, lead to higher prices, greater savings and the construction of new sources sponsored by private entities.

of time.⁴² And this is exactly the argument of those interested parties⁴³ asking for the removal of mining limits⁴⁴ mainly in Northern Bohemia. Specifi cally, it is the CSA and Bilina Quarries, whose production is aimed mainly for large heating plants such as Opatovice or Pribram.

The core of the problem lies in the fact that brown coal in the Czech Republic is a source covering approximately one third of total thermal energy supplies and more than a half of the central heating supply system. Given the limits and gradual lessening of exploitable reserves, the termination of local mining threatens to take place before 2060, with intermittent declines already in 2010–2015, before 2025 and be-fore 2040. Moving the limits, which would inevitably lead to notable landscape devastation and disruption of the functioning of the entire area, would prolong these deadlines for as much as 50 years (see Zpráva Nezávislé odborné komise, p. 16).

If we disregard the commercial interests of the companies running the mines, it is basically again a dispute over the concept and understanding of the energy industry as such. On one side, we see stress placed on maximum energy self-suffi ciency secured by production; on the other side, social and environ-mental aspects are highlighted as well as the general interest to produce energy from other (mainly renew-able) sources, and potentially to lower consumption.

Whatever the case, both the above-mentioned problems indicate that a signifi cant part of the future debate over the Czech energy sector will be about the environmental issue, at least in the background. The energy sector is one of the worst polluters of the environment, which is why it is exposed to progressively more intensive criticism at the level of the state, the EU and worldwide. The infl uence which these discus-sions might have on Czech energy policy can be illustrated by the issue of emisdiscus-sions allowances.

The latter are the tool which EU member states decided to employ in an effort to reduce CO₂ emis-sions. Basically it is refers to the situation where each crucial producer of these emissions in the EU in-dustry and energy sectors must limit this production by reducing it to the level determined by emissions allowances. They are allocated to single states after they submit a calculation of how much of these allow-ances they need. The European Commission requested amount revises these (usually downwards). The amount of granted allowances is dropping over time, and companies which lack these allowances must make fi nancial compensation for surplus CO₂ production or buy allowances from their competitors.

42 Construction of a nuclear power plant, including obtaining all necessary materials arising from legislation, takes approximately fi fteen years, while coal power plants require only half the time.

43 The major proponents of removal or movement of limits are understandably the representatives of energy companies, headed by Mostecka uhelna and Severocesky doly, a. s. (owned by CEZ). This is also the stance shared by CSSD and KSCM. Permanent opposition comes from the Green Party, which thanks to its participation in Topolanek’s government possessed the means of preventing mining. The importance of the issue of coal mining beyond the limits is best evidenced by the statement of Prime Minister Mirek Topolanek, who, after a vote of no-confi dence had been passed on his government, noted at a press conference: “If you are interested in why our government collapsed, look at Mostecka uhelna, it is a nice package of money” (see Spurný, 2009). The mentioned connection was, however, never proven and neither was the Prime Minister himself willing to further elaborate on this very serious claim.

44 That is certain limitations of bordering areas, separating where the mining is and is no longer allowed. In 1991 the limits were enforced by Minister of the Environment Ivan Dejmal, through Government Decree No. 444.

Unlike the concept, which seemed effi cient, the realization of the whole plan did not have much success. In both rounds of allowance distribution in the Czech Republic (2005–2007 and 2008–2012), the state yielded under the pressure of companies⁴⁵, and submitted to the European Commission an applica-tion for a volume far exceeding their needs. After the Commission reduced this amount, approximately 10 % more allowances were allocated than the companies could even use. This essentially Europe-wide approach, reaching its peak with plunging prices of allowances, naturally did not lead to a reduction in emissions, but at least at the beginning did it affect electricity prices, when producers and traders strove to have them include the expected increase in costs (see Zpráva Nezávislé odborné komise, p. 21–23).

EU member states for that reason recently decided to proceed differently and the allowances from 2013 are not allocated as so far for free but are auctioned. They encompass a larger volume of greenhouse gases but address only limited categories of great polluters. In line with the original idea, the number of allowances is from recently also progressively limited in order to reduce emissions by 21 % in comparison to 2005 rates by 2020.

The system has the potential to notably infl uence the new EU members with their more outdated in-dustry, producing a greater volume of emissions and getting electricity primarily from coal. An exception was for that reason made, according to which the states can in case of need and under particular delineated provisions allocate a part of the allowances to its producers for free, with the gradual phasing in of pay-ments by 2020.⁴⁶

The Czech Republic has also used this opportunity, nonetheless in a strongly criticized manner, which did not help to remove the label from the Czech energy sector as being extraordinarily linked to politics.

The norm excusing the companies to pay the fees in exchange for investment into more environmental and modern operation was, therefore, enforced in the form of a rider to the amended act on excise duties, more-over, by a temporary “bureaucratic” government lacking an electoral mandate. The arguments favouring the need for this act can be also challenged, as it was quite openly declared as aid to CEZ in the estimated amount of less than 70 billion CZK (see Emisní povolenky pro ČEZ zdarma?). The prohibition of increas-ing electricity prices was not too relevant with respect to its tradincreas-ing at the exchange, which would anyway be infl uenced by the allowances thanks to the more expensive electricity from abroad.⁴⁷

The last of the constantly arising problems has a geopolitical and security character. It is a contin-ually more self-confi dent Russian energy policy and its open economic-political context. Moscow thus not only sees its rich natural reserves as a source of economic prosperity, but also as an instrument of its foreign policy. In this light we should observe for example the New Year’s Eve quarrels between Ukraine and Russia over the prices and gas volumes, which escalated in 2006/2007 and 2008/2009.⁴⁸ In the second case the disagreement escalated to the extent that the fl ow of natural gas through Ukraine to Europe was interrupted, causing ten states receiving supplies through this route to experience a serious shortage of gas.

45 Today there are 400 facilities involved in the allowance trading system, starting with power plants and heating plants, then glass and metallurgical companies, through to coking plants and refi neries. The system in that manner covers about 65–70 % of all Czech CO₂ emissions.

46 For more detail, see for example the EU ETS.

47 Neither did the soon emerging affair contribute to this unclear situation. Only several weeks after passing the legal rider, photographs were released showing Prime Minister Topolanek, CSSD Deputy Milan Urban (one of the rider’s proposers), CEZ lobbyist Vladimir Johanes and others on a joint holiday in Tuscany. Such holidays are not illegal, but it remains questionable how ethical they are.

48 This text does not aim to analyse the cause of this crisis nor does it look for whom to blame. What is, however, substantial for the Czech Republic is that Russian gas exports, making up approximately two thirds of the Czech consumption, pass through Ukraine. Interruption of supplies for whatever reason has a serious impact on domestic energy security.

By increasing its imports through Germany, the Czech Republic was not signifi cantly affected and was therefore in a position to offer help to critically threatened Slovakia, while this problem however remains a serious challenge to the future planning of energy policy. Excessive energy dependence on a single supplier can have a signifi cantly negative impact on any country’s freedom to manage its foreign policy, including the Czech Republic. The fact that Russia is the fundamental and practically irreplaceable supplier of both oil and natural gas cannot be ignored either, as, under the current circumstances neither the EU nor the Czech Republic have a replacement. Solving this problem will probably rely both on persistent efforts to obtain other than Russian sources as well as on considered and consistent diplomacy directed at Moscow.