IEA Commends Czech Republic for Energy Supply Security, Calls for Further Efforts on Regularity Reform and Energy Efficiency

Last February, the Czech Republic became the 25th Member of the IEA. The first review of Energy Policies of the Czech Republic released today praises the country for its impressive achievements in energy market reform. Robert Priddle, the IEA Executive Director said: "the Czech Republic is to be commended for improving oil and gas security of supply and reducing air pollution. However, an effective regulatory framework is needed to open its electricity and gas markets". Mr Priddle noted that "energy efficiency should be a high priority, in order to alleviate the effect of price increases as cross-subsidisation is phased out".

Energy Supply and Security
The Czech Republic has greatly diversified its oil and gas supplies and routes. Commissioned in 1996, the oil pipeline from Ingolstadt (Germany) to Litvínov provides Czech refineries with an alternative to Russian supplies. Norway now supplies 15% of the country's natural gas. Strategic oil stocks and emergency preparedness meet with IEA standards.

The Czech Republic plays an important role in the transit of natural gas to Western Europe. The report notes that the reliability of, and fair access to, transit facilities is likely to continue after the privatisation of Transgas, a.s.

Coal still dominates the Czech fuel mix and generates 70% of total electricity. The commissioning of a second nuclear power plant in Temelín next year will increase the share of nuclear in total power generation to 40%. As a result, the use of brown coal is expected to be cut by 25% and several power plants are likely to be closed.

The Republic's two nuclear power plants are to be privatised. The report stresses that nuclear safety should remain a high priority and that there must be adequate and guaranteed funds for future waste management and decommissioning of nuclear plants and uranium mines.

Regulatory Reforms and Competition
While Mr Priddle noted "remarkable progress in energy market reform during the last decade," he added that "the momentum must be maintained to achieve real competition". From 2002, Czech consumers will be given the right to choose their electricity suppliers. Full liberalisation of the market is scheduled for 2006. The introduction of competition in the natural gas market will start in 2005.

The government plans to sell electricity, natural gas and oil state-owned companies as single packages, so that they will remain large and sufficiently influential to compete in the European market, and to offer the companies for sale at high prices.

It is regrettable that the government has dropped its plan to separate the ownership of CEPS, the Czech Electricity Transmission System, from CEZ, a.s. Natural gas transmission and storage entities will remain under the control of Transgas, a.s. Imports of electricity and natural gas will not be fully liberalised.

This approach raises the concern that the existing energy companies could control the entire supply chain and discourage competition. "The Czech authorities should ensure fair and open access to the networks" said Mr Priddle. Non-exclusive contracts should be established between the distribution companies and CEZ, a.s. and Transgas, a.s., and distribution companies should be able to supply clients outside their geographical area.

The Energy Regulatory Office must be allowed to function effectively if competition is to be achieved, possibly by adding a number of independent commissioners and by providing adequate financial resources.

ERO's planned removal of cross-subsidisation in the electricity and natural gas sectors is important not only for effective competition, but also for energy efficiency improvement in households. Electricity and gas tariffs, which truly reflect cost, will enable energy companies to finance the development and modernisation of the energy sector.

The oil market is competitive. However, the strength of major oil companies, which already hold substantial market share, may restrain competition. This should be monitored by the Office for the Protection of Economic Competition.

The Czech government has made substantial progress in restructuring and privatising the coal sector, although it has announced that the planned lifting of restrictions on coal imports from 2002 will be postponed.

Energy Efficiency and Environment
Energy intensity in the Czech Republic fell dramatically during the last decade but is still 1.6 times the average of IEA Europe and 25% higher than Hungary. "Further efficiency improvement and, consequently, reducing CO₂ emissions is possible" said Mr Priddle. The Czech Republic will have no major difficulties in meeting its Kyoto target but emissions per unit of GDP are still higher than the average for IEA Europe.

The report recommends that energy efficiency improvement should be given a high priority in the country's energy policy. The Czech Energy Agency is responsible for implementing energy efficiency policy, but needs adequate resources to be effective.

The report commends the Czech Republic for having dramatically reduced its emissions of pollutants, thanks to an effective mix of policy measures and investments. These efforts should continue, notably in transport, a major emitter.