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2. 2 Seminar on Institutional Aspects of Energy Market Reforms Roma, 24 March 2003 Development of Czech Energy Policy and Institutions Miroslav Malý ENVIROS Prague, Czech Republic e-mail: miroslav.maly@enviros.cz tel.: +420-284007481

3. 3 Contents Legal framework for Energy Policy Current Energy Policy Future Energy Policy Major bottlenecks in energy reform, policy adaptation and sector restructuring Lessons learned

4. 4 Legal framework for Energy Policy (1) National Energy Policy The National Energy Policy is a strategic document that defines government objectives in energy management for the next 20 years; it shall comply with the needs of economic and social development, including the protection of the environment, and shall serve as a basis for the territorial energy policies. A draft of the National Energy Policy shall be worked out by the Ministry of Trade and Industry (hereinafter referred to as the ”Ministry”) and submitted to the Government for approval. The Ministry shall assess the implementation of the national energy policy at least once in every two years and inform the Government of the outcome of such assessment. Should the need arise, the Ministry shall propose changes to the National Energy Policy which are subject to government approval.

5. 5 Legal framework for Energy Policy (2) Territorial Energy Policies Territorial Energy Policies shall be based on the National Energy Policy; they shall lay down the objectives and principles of energy management at regional level. They shall create conditions for the efficient use of energy in compliance with the needs of economic and social development, including the protection of the environment and efficient management of natural energy resources. Territorial Energy Policies shall be produced by the regions, the City of Prague, and the statutory cities within their delegated powers. A Territorial Energy Policy shall constitute the binding basis for master planning. A municipality shall have the right to produce a Territorial Energy Policy for its territory or its part; such a Policy must comply with the National Energy Policy and may be implemented by a binding regulation issued by the municipality. Territorial Energy Policies shall be elaborated for the period of 20 years and may be complemented or modified if the need arises.

6. 6 Legal framework for Energy Policy (2) A Territorial Energy Policy should include: –analysis of trends in energy demand; –analysis of possible sources and methods of energy management; –assessment of options to exploit renewable energy sources; –assessment of economically exploitable savings resulting from energy conservation; –energy management blueprint for the territory, including justification and environmental impact assessment. When drafting its Territorial Energy Policy, a region may seek collaboration among energy sector licensed businesses, solid and liquid fuel suppliers whose business activities take place in the territory relevant for the Territorial Energy Policy, as well as among the largest energy consumers. If requested to do so by the region, they shall be obliged to provide free of charge and within the period indicated by the region all the data that may be necessary for the elaboration of such Policy. Details are given in a special Resolution of the Government

7. 7 Current Energy Policy (1) The current National Energy Policy was approved by the Resolution No. 50 of the Government of the Czech Republic of 12 January 2000. Energy policy is based on identical goals as the energy policy of the European Union. It puts emphasis on requirements for ensuring: –Environmental protection and respect of the principles of sustainable development; –Security of energy supplies; and –Economic competitiveness.

8. 8 Current Energy Policy (2) Within this framework the following basic objectives are respected: –Assurance of economically favourable use of domestic primary energy sources; –Specification of public service obligations, or those in the general economic interest; –Achievement of accordance between economic and social development and protection of the environment of the Czech Republic, its regions and localities; –Gradual assurance of common objectives with the EU, including implementation of legislation applicable for the energy sector;

9. 9 Current Energy Policy (3) –Expansion of freedom for final customers to decide about the type or sources of energy supplies and services; and –Creation of transparent and relatively stable material and legislative conditions for effective management of business processes by energy and energy service suppliers.

10. 10 Future Energy Policy The policy should deal with the following major issues: –Reflect requirements of EU Energy Policy (security of supply, environment protection, economic competitiveness); –Expected fast growth of energy import dependency in future (up to 70% in 2030 as compared to about 30% in 2000); –Decision on future availability and role of domestic energy resources (coal, nuclear, renewables); –Meeting strict emission ceilings proposed by the EC (SOx, NOx); and –Implementation of new EU Directives dealing with: IPPC, Emissions from large combustion sources RES-E, Speed up of Energy Market Opening Strategic Stocks of Fuels Energy Performance of Buildings

11. 11 Major bottlenecks in energy reform, policy adaptation and sector restructuring (1) Very fast start of energy sector privatisation in early 1990s but later on the process was slowed down and thus not finalised yet due to unclear strategy of the government. Involvement of municipalities in privatisation but later on low interest in keeping the shares in regional energy companies (received free of charge) due to non clear idea on energy planning on regional level and no income from holding shares due to restrictions on dividend payout. Very long period in updating energy policy in the situation of transition period (from 1992 to 2000) created unclear situation for making business in energy sector and increased risk for new investments. It resulted in many low-efficient investments and high overcapacity in power and heat sectors.

12. 12 Major bottlenecks in energy policy adaptation and energy sector restructuring (2) Fast opening of the power market and slow opening of gas market will create unbalanced situation for energy users and in future should be harmonised with a approach of the EU. Critical situation in district heating in some regions due to fast privatisation, expected future large market and profit but instead of that drop in heat demand and fast growth in heat prices. Slow and not harmonised removal of energy price distortions created not fair competition among energy carriers and led to wrong decisions of energy end-users (e.g. fast implementation of electrical heating). Social impacts of energy sector restructuring are much greater then expected (reduction of staff of energy utilities by up to one half) and thus the process is very politically sensitive. Social impacts of removal of energy price distortions is mostly concentrated on low income households and thus needs support system (subsidies directed for low income households).

13. 13 Lessons learned (1) Energy policy with clear, well structured and realistic goals and steps for energy sector restructuring and privatisation must be ready prior the start of the reform process. The clear picture and major steps must be presented in the policy. The policy document must be regularly revised to reflect changes in the situation (with periodicity 2-4 years). The policy must be based on general consensus of various bodies involved in the process (energy producers, suppliers, consumers, politicians, environmentalists, etc.). Thus regular discussion of various stakeholders during policy development is necessary (to discuss individual milestones in policy development). Energy policy must be implemented through energy legislation - primary and secondary one - not to be only a proclamation. Thus it should contain clear statements on the needs for new legislature or update of the current one.

14. 14 Lessons learned (2) Privatisation process must be transparent and not primarily oriented on income of the state budget but the future of the energy sector is a key goal. Restructuring and privatisation of energy sector is usually connected with loose of jobs but this fact should not slow down or stop the process and instead of that the government should promote creation of new jobs through investment incentives in regions with high unemployment rate. This should be identified in the Energy Policy and harmonised with other government policies (social, regional development, investment promotion…) Removal of energy price distortions is a politically sensitive issue nevertheless can be solved through special treatment of low income households (covering of a part of living costs for some period). Long-term security of energy supply must be taken into account nevertheless opening of energy markets can help in improving security of supply through diversification of suppliers.