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Market and economy

The electricity market is going through a period of considerable changes which, however, should not have negative impacts on the consumers. Final consumers request high reliability of electricity supplies for stable prices. Current low exchange prices of electricity in Europe may support economic growth but are not a sufficient impulse for investments to any non-subsided sources. The mandatory energy savings stipulated by the European Commission require investments at the side of consumers and are often conditioned by financial support from state budget. For the Czech Republic, it is important to achieve a consensus on suitable development of the energy industry and to reach an agreement on its funding. From this point of view, the State Energy Policy is a well-balanced initial document.

The European market is undergoing gradual integration; majority of EU countries participates in common market at present while joining of the remaining ones is a priority. Within the market integration, the focus currently concentrates on the XBID project which shall establish the integration of intra-day markets. Completing of the project is planned for 2018. Connection of other countries, which will also include border interconnectors of the Czech Republic, might be done during the summer of 2019. Interconnection of electricity markets is not a terminal point of the efforts for integration of the European energy industry. Establishment of short-term market together with the possibility to trade electricity closer to the supply time is planned and shall, besides others, enable better RES integration to the market. For this reason, common settlement of deviations on 15-minute basis is planned by 2025 at the latest as well as implementation of standardized ancillary services (aFRR – automatic secondary regulation, mFRR – manual secondary regulation, RR – tertiary reserve). Development of interconnected electricity markets in Europe is shown in the following picture. Evidence of the increasing emphasis on the possibility of trading electricity closer to delivery time is also a steady increase in closed trades on platforms allowing short-term (day-ahead and intra-day) electricity trading in Europe. For example, on the domestic platform organized by the Market Operator of the Czech Republic (OTE, a.s.), a total volume of 22.33TWh of electricity was traded in 2017, resulting in an increase of 7.6% compared to 2016, where 20.75TWh of electricity was traded. 21.75TWh of this volume was traded on day-ahead electricity market. In the intra-day electricity market, 544.8GWh of electricity was traded and the remaining part was traded on the block electricity market. The total traded volume on the short-term market in the Czech Republic is, on average, about 1/3 of domestic net consumption.

Development of interconnected electricity markets in Europe


Medium-term horizon

In the medium-term horizon by 2030, significant correlation of prices on German and Czech electricity market is anticipated – German market is to be determinative for Czech prices. At the beginning, market electricity prices will stagnate at ca. 32 EUR/MWh. More considerable increase in prices is anticipated after 2020 due to the change in source base structure both in the Czech Republic and in Germany (decommissioning of the last nuclear power plants) with gradual increase to around 46 EUR/MWh by 2030. The increase in electricity price by 2030 reflects the anticipated growth in the allowance price due to the MSR (Market Stability Reserve) mechanism.

Long-term horizon

Should the power system be stable and reliable after 2030, considerable investment will be necessary. Total investment in renewal and development of the Czech power system in the period from 2018 to 2050 will range between CZK2015 1.1 and 1.6 tril. In 2050, the required annual investment to renewal and development of the source base of the Czech power system is to be much higher than at present. The amount of the necessary annual investment greatly varies in the case studies. The greatest differences among the case studies occur by the end of the period, in particular in 2050. In this year, the anticipated annual investment will amount to almost CZK2015 70 bil. for the Conceptual case study, to almost CZK2015 80 bil. for the EU – Energy Savings case study and to more than CZK2015 100 bil. for the EU – Low-Emission Sources case study. The main reason of this disproportion is the high cost related to electricity accumulation, especially in the EU – Low-Emission Sources case study. The high investment intensity reflects in production costs of electricity which are ca. 40% higher in the EU – Low-Emission Sources case study compared to the Conceptual case study. The increase in production costs will result in pressure on respective increase in electricity prices. The EU – Energy Savings case study, besides the investments in electricity industry itself, requires high investments to additional savings beyond the case studies Conceptual and EU – Low-Emission Sources. After accounting investments into savings, the annual investments around 2050 will increase to nearly CZK2015 130 bil. in the case study EU – Energy Savings.

In the EU – Energy Savings case study, the cost of providing all energies (including electricity, heat, gas and other energy sources) for consumers, to which the cost of savings measures have to be included for comparability, will be almost 20% higher than in the Conceptual case study and almost 10% higher in case study EU – Low-Emission Sources.