Regulation in Energy Business
Blahoslav Němeček
Energy Regulatory Office
9th September 2011
Prague
1
EU Energy Policy Targets
9th September 2011
Prague
2
Big challenge for 2020
How much are we ready to pay?
9th September 2011
Prague
3
New situation – 3rd package

Crucial points



Cooperation of regulators – ACER
Coordinated cooperation of TSOs in gas and
electricity (ENTSO-G, ENTSO-E)
More independent and powerful national
regulators
9th September 2011
Prague
4
3rd package expectations
3rd Package will enable faster progress:
 ‘top-down’ Framework Guidelines and binding
network codes can ensure harmonized rules
 National regulatory authorities will have wider
European duties – not just national ones
 10 year network development plans will
encourage more joined-up networks
9th September 2011
Prague
5
New age – after 3rd package


Crucial things for cross-border trade are
directly done by Regulations
Main areas for implementation resulting
from Directives are:


Regulator’s independency
Unbundling issues



TSO certification
Costumer protection
Key role for ACER and ENTSO-E &
ENTSO-G
9th September 2011
Prague
6
Regulator’s new cross border EU
mandate

promote a competitive, secure and
environmentally sustainable internal electricity
and gas market within the Community in close
cooperation with the Agency, the regulatory
authorities of other Member States and the
Commission;

duty to ensure compliance of TSOs and
electricity and gas undertakings with Directives
and other relevant Community legislation, incl.
cross border issues;
9th September 2011
Prague
7
Regulator's important powers




can take binding decisions on electricity and gas
undertakings;
carry out investigations and decide upon and
impose any necessary and proportionate
measures to promote effective competition and
ensure proper functioning of the market;
require any information from electricity and gas
undertakings;
impose effective, proportionate and dissuasive
sanctions.
9th September 2011
Prague
8
Independence of NRAs

NRA can take autonomous decisions
independently from any political body
 decisions
of the NRA are immediately binding and
directly applicable

NRA has separate budget allocation with
autonomy in the implementation of the allocated
budget
 approval
of the budget by the national legislator
cannot be used to influence the NRA's priorities

NRA must have adequate human and financial
resources to carry out its duties
9th September 2011
Prague
9
Role of ACER

ACER shall cooperate with NRAs and TSOs to
ensure the compatibility of regulatory
frameworks between the regions with the aim of
creating
a competitive internal market

where ACER considers that binding rules on
such cooperation are required, it shall make
appropriate recommendations
9th September 2011
Prague
10
Czech Regulator Activities

Price regulation
Support of RES, CHP and secondary energy
sources
Quality supply monitoring
Grid connection
Market rules
Statistics
Market integration, international affairs

Questions, disputes…






9th September 2011
Prague
11
General information about power
system in the Czech Republic
Total installed capacity:
20 073 MW
Number of electricity generation licence holders:
13 301
(only 8 with installed capacity > 200 MW)
TSO (lines 400 kV and 220 kV):
ČEPS, a.s.
(www.ceps.cz)
Number of regional DSOs:
Number of licensed local DSOs:
Number of licensed electricity traders:
Electricity Market Operator:
3
297
321
OTE, a.s.
(www.ote-cr.cz)
9th September 2011
Prague
12
Electricity market opening

1st January 2002 – eligible customers with consumption 40 GWh

1st January 2003 – eligible customers with consumption 9 GWh

1st January 2004 – end customers with continuous metering
except households

1st January 2005 – all end customers except households

1st January 2006 – all end customers
Market
opening
9th September 2011
2002
2003
2004
2005
2006
17,9 %
29,8 %
47,4 %
72 %
100 %
Prague
13
Electricity Market Principles
Electricity supplier
(trader)
+
=
Network operators
Customers
Generators
Monopol activity
Physical
flow
9th September 2011
Contractual relations
(supplier
Prague x customer)
Payment
14
Electricity supplier changes
200 000
Electricity supplier changes
180 000
160 000
140 000
120 000
100 000
80 000
60 000
40 000
20 000
0
2005
2006
2007
wholesale customers
9th September 2011
Prague
2008
small customers
2009
2010
households
15
Price regulation
in electricity sector
9th September 2011
Prague
16
Regulated prices in electricity








Electricity transmission over the transmission system
Electricity distribution over particular voltage levels (HV, MV, LV)
Price for meeting the extra costs related to the purchase of
electricity from renewable sources, combined heat & power and
secondary sources paid by final customers
System services
Market Operator activities
Electricity from combined heat & power plant - CHP, electricity
from secondary sources
Electricity production from renewable sources (feed-in tariffs +
bonuses)
Decentralized (distributed) generation
ERO Price Decisions
9th September 2011
Prague
17
Main regulatory principles
Fixed regulatory periods
 I. period:
1.1.2002 – 31.12.2004
 II. period:
1.1.2005 – 31.12.2009
 III. period:
1.1.2010 – 31.12.2014



Main regulatory principles are valid during whole
regulatory period and set beforehand
During regulatory period only external factors
taken into account (consumption, inflation,
wholesale price of electricity )
Individual tariffs for transmission and distribution
licence holders
9th September 2011
Prague
18
Process of prices adjustment

1. step
– delivery of DSO’s,TSO and MO regulatory
sheets from previous and regulated year

2. step
– information from ERO to TSO and MO about
prices for transmission, system services and
MO services

3. step
– information from ERO to DSO concerning
distribution prices

ERO Price Decision no later than 30. November
9th September 2011
Prague
19
Price setting methodology for
transmission & distribution
Basic component for prices each year:
method RPI-X: allowed revenues
AR = AC + D + P
P = r . RAB
AR …
allowed revenues
AC …
allowed costs
D…
depreciation
r…
rate of return (return on operating assets), applied
value of WACC
P…
profit
RAB … regulated assets base
9th September 2011
Prague
20
Price setting methodology for
transmission & distribution
Average prices for regulated activities
c = TR / PM
where TR = AR + VC
c … average price for each activity in regulated year
PM … planed amount of technical units (MWh)
TR … total revenues
AR … allowed revenues
VC … variable costs
During the regulatory period are taken into account:

changes of assets net book value

inflation – combined index (Producer price index, Wage escalation index)

changes of technical units

requirement for efficiency growth – factor X applied on costs
9th September 2011
Prague
21
Transmission
Price for transmission – 2 components
AR
(allowed
revenues)
VC
(costs of
loses)
Price for reserved capacity
9th September 2011
Price for using networks
Prague
22
Transmission
Price for reserved capacity
 Calculated from the allowed revenues
 Allowed revenues lowered by part of the revenues from auction
 Allowed revenues divided according to the capacity balance on
the interface between transmission and distribution system


Average of 4 winter maximum consumption balance from TS
Not paid by generators, exporters and pumped storage hydro
plants
Price for using networks
 Calculated from the variable costs (=loses in transmission
system)
 Not paid by exporters
9th September 2011
Prague
23
Distribution

Price for distribution on VHV and HV – cumulative postage
stamp with 2 components:


price for reserved capacity (CZK/MW . year, CZK/MW . month)
price for using networks (CZK/MWh)
AR
(allowed
revenues)
VC
(costs of
losses)
Price for reserved capacity
9th September 2011
Price for using networks
Prague
24
Distribution – VHV, HV
Price for reserved capacity
 Calculated from the allowed revenues
 Allowed revenues divided by the total capacity, which is expected to
be reserved by the end-users of DS in the next year
 2 possibilities of capacity reservation



yearly (paid once per month)
monthly
There are special payment in case of exceeding the booked capacity
(price for exceeding reserved capacity = 4 times more
Price for using networks
 Calculated from the variable costs (=loses in distribution system)
 division by total amount of consumption (MWh), expected to be
realized by the end-users of DS in the next year
 Limits of technical loses (TL) and commercial loses (CL) with
decreasing characteristic of CL
 Prices mainly reflect increase of wholesale price of electricity
9th September 2011
Prague
25
Distribution – LV


A different situation:
 a wide scale of tariffs on LV (11 for small commercials, 9 for
households)
 no continuous metering (implementation = very high costs)
→ a different solution needed
(load profiles - 8 categories)
Targets:
 keep the tariff structure in accordance with the character of
consumption
 keep the price relations between tariffs
 keep the price structure:
 Capacity charge according to circuit-breaker size (CZK/A)
 Energy charge (CZK/MWh) – 1 time zone, 2 time zones (HT, LT)

Inputs:


allowed revenues on LV level, total costs on loses (loses limits
set)
tariffs statistics; limiting point
9th September 2011
Prague
26
Distribution – LV
Capacity cost
(investment, depreciation, maintenance)
DISTRIBUTION - LV
Energy cost
(energy losses in LV + upper levels
k
k
Households
SCC
k
k
k
Capacity
ΣA
k
k
HT
MWhH
T
Capacity
k
k
k
HT
LT
Capacity
ΣA
Σ A MWhH MWhL
T
HT
MWhH
T
T
D46
D25
k
k
k
k
D01
C46
C25
C01
k
k
Capacity
k
k
HT
LT
Σ A MWhH MWhL
T
T
Allocation:


keeping recent price relation between tariff categories
keeping limiting point between tariff categories (=annual
consumption whereat it is more suitable for the customer to
change the tariff)
9th September 2011
Prague
27
System services
Market of Ancillary Services - Balancing market
Market of ancillary services established in 2001 and
operated by ČEPS

Ancillary services procurement





tenders (long term, year, quarter), approx. 95% of total PR, SR,
TR, quick start and operating reserve
day-ahead market (approx. 5% of total PR, SR, TR and
operating reserve)
direct agreement with providers (regulation of reactive power,
black start and islanding)
balancing energy from balancing market and abroad
Providers

19 companies with pre-qualification
9th September 2011
Prague
28
Price regulation
9th September 2011
Prague
29
Basic information about regulatory period

Duration of the regulatory period is 5 years
(1. 1. 2010 - 31. 12. 2014)

Methodology of regulation - revenue-cap

Progressive recognizing of investment into RAB

Granting of the accounting depreciation into the regulation

Annual calculation of WACC reflecting market signals
AR  AC  D  ( RABWACC )  Q
9th September 2011
Prague
30
Parameters of the regulatory formula
for the III. RP - RAB


Unbundling process 2005 – 2007
Distributional assets reevaluated


Depreciated Optimized Replacement Cost (DORC) method
applied
Reevaluation coefficient




DSO – (1,4 -2,6) higher coefficiant in gas sector
TSO – (3,4) electricity TSO already reevaluated
Assets not automatically included into RAB
Progressive recognizing of reevaluated assets to the
RAB on the basis of investment activity

Motive companies to invest to a higher degree
9th September 2011
Prague
31
Parameters of the regulatory formula
for the III. RP - WACC
WACCNHBT
WACC NHAT  re 
WACCNHAT

1 T
E
D
 rd  1  T  
ED
ED
D

 L   unL  1  1  T   
E

re  rf  L  ERP
where:
WACCNHBT
WACCNHAT
T
D
E
re
rd
rf
ERP
βL
βunL
9th September 2011
nominal value of WACC before tax
nominal value of WACC after tax
effective tax rate
debt
equity
cost of equity
cost of debt
risk free rate of return
market-related risk premium [equity risk premium]
levered beta
unlevered beta
Prague
32
WACC
Riskfree fate rf (1)
The key issue for calculating the risk-free rate of return is to determine the following:
Maturity of government bonds

The

In recent years, regulatory authorities have mostly preferred medium-term bonds, which better
match companies’ financial planning
current rate of return, or rate of return from long-term averages
historical values are not available
Return on government bonds 2000-2008
5-year bonds
10-year bonds
8
7
6
5
4
3
2
1
9th September 2011
Prague
30.8.2008
30.4.2008
30.12.2007
30.8.2007
30.4.2007
30.12.2006
30.8.2006
30.4.2006
30.12.2005
30.8.2005
30.4.2005
30.8.2004
30.12.2004
30.4.2004
30.12.2003
30.8.2003
30.4.2003
30.12.2002
30.8.2002
30.4.2002
30.12.2001
30.8.2001
30.4.2001
30.12.2000
30.8.2000
30.4.2000
0
33
WACC
Unlevered beta βunL (1)


The beta coefficient expresses the degree of risk of investment
in a given market segment (for example, distribution,
transmission) in relation to the risk of investment in the market
as a whole .
There are many options for deriving this coefficient. The Office
has analysed the following two:

Computing the coefficient on the basis of data from stock markets
Company
Country
Industry
Unlevered beta
%D
Tax
Levered beta
Europe
Elektricity distribution and transmission
ET, ED
0.35
0.05
0.30
0.34
ET
0.15
0.13
0.34
0.12
0.39
0.49
0.30
0.26
ET
0.67
0.48
0.33
0.43
Switzerland
ET
0.37
0.01
0.21
0.37
Terna
Italy
ET
0.44
0.46
0.35
Eszak-Magyar
Hungary
ED
0.59
0.03
0.20
0.30
0.58
Cegedel SA
Luxembourg
Elia System Oper
Belgium
National Grid
UK
Red Electrica
Spain
Societa Elettrica Sopracenerina SA
ED, ET, GD, GT
0.34
Gas distribution and transmission
Scottish & Southern Energy PLC
UK
GD, GT
0.62
0.24
0.30
0.53
Centrica Plc
UK
GD
0.42
0.29
0.30
United Utilities
UK
0.43
0.23
0.30
0.35
0.37
Ascopiave
Italy
GD
0.25
0.01
0.33
0.24
Snam Rete Gas
Italy
GT
0.39
0.42
0.33
0.27
Enagas
Spain
GT
0.67
0.50
0.33
0.44
0.37
9th September 2011
Prague
34
WACC
Unlevered beta βunL (2)
Computing the coefficient on the basis of regulatory practice

Distribution, power
Beta unlevered
Austria
0.33
Poland
Slovenia
Portugal
Estonia
Finland
France
Ireland
Sweden
NL
0.30
0.45
0.40
0.48
0.28
0.22
Irelan
d
Italy
0.40
0.37
0.60
0.16
0.48
0.41
Finland
Poland
NL
France
0.30
0.60
0.30
0.45
0.35
0.31
0.22
0.33
NL
Ireland
Italy
UK
0.30
Franc
e
0.58
0.30
0.43
0.49
0.46
Hungary
Italy
average
0.41
0.38
Luxemburg
Transmission, power
Beta unlevered
0.16
Distribution, gas
Slovenia
Beta unlevered
0.18
Transmission, gas
Beta unlevered
Slovenia
Slovenia
0.15
Austria
0.33
Denmark
0.40
France
Estonia
Finland
NL
UK
Ireland
Italy
0.30
0.30
0.45
0.41
0.38
Portugal
0.58
Hungary
Hungary
0.49
Austria
Portugal
0.44
Hungary
0.43
Portugal
0.22
average
0.33
average
0.39
Austria
average
0.33
0.38
The Office has set beta as follows:
Electricity transmission
Electricity distribution
Gas transmission
Gas distribution
9th September 2011
0.30%
0.35%
0.35%
0.40%
Prague
35
WACC
Equity risk premium ERP (1)



shows the investors’ risk expressed as the difference
between the rate of return on the market portfolio of a
particular country and the risk-free rate of return
based on the difference between the return on
government bonds and the return on shares in the
“ideally” distributed portfolio
ERO analyzed two approaches

Estimate based on expectations
 expectations differ significantly in each part of the economic
cycle such as boom, stagnation, and recession
 Estimate based on historical data
 derived from values achieved on the US capital markets
since 1928 using Professor Damodaran’s database
9th September 2011
Prague
36
WACC
Equity risk premium ERP (2)
Stocks
T.Bills
60,00%
40,00%
20,00%
19
28
19
31
19
34
19
37
19
40
19
43
19
46
19
49
19
52
19
55
19
58
19
61
19
64
19
67
19
70
19
73
19
76
19
79
19
82
19
85
19
88
19
91
19
94
19
97
20
00
20
03
20
06
0,00%
-20,00%
-40,00%
-60,00%
Year
2005
2006
2007
2008
2009
Data
1928-2004
1928-2005
1928-2006
1928-2007
1928-2008
9th September 2011
Shares
9,86%
9,79%
9,86%
9,81%
9,07%
Bonds
5,02%
4,99%
4,95%
5,01%
5,19%
Shares-Bonds Rating ČR Default spread
4,84%
A2
0,90%
4,80%
A2
0,80%
4,91%
A2
0,80%
4,79%
A1
0,70%
3,88%
A1
1,40%
5%
Prague
Result
5,74%
5,60%
5,71%
5,49%
6,40%
37
WACC
Equity risk premium ERP (3)
Risk
Premum US + Default spread CZ = ERP Czech Republic
5%
9th September 2011
= 6,4 %
Prague
38
WACC
Debt to equity ratio


European regulators use the ratio of capital distribution
and consider use of 60% of debt to be the optimum
approach
Office conducted first step that indicates to companies
to reconsider their structure of capital employed
9th September 2011
Prague
39
rd  rf  Dp


WACC
Cost of debt (Dp)
Derived from credit default swap (CDS)
 Czech companies not traded on the stock exchange
On the basis of implicit (or synthetic) rating
 the interest coverage rate = EBIT / Interest Expense
or

Determine directly cost of debts
 From the time series of the Czech National Bank
 Actual interest rates for non-financial companies
 Volumes in excess of CZK 30 million, and were fixed for one to five years
I.0
4
IV
.0
4
VI
I.0
4
X.
04
I.0
5
IV
.0
5
VI
I.0
5
X.
05
I.0
6
IV
.0
6
VI
I.0
6
X.
06
I.0
7
IV
.0
7
VI
I.0
7
X.
07
I.0
8
IV
.0
8
VI
I.0
8
X.
08
I.0
9
rd 
6
5,75
5,5
5,25
5
4,75
4,5
4,25
4
3,75
3,5
3,25
3
2,75
Klouzavý průměr/6 (Nefinanční podniky (S.11) - ostatní nad obj. 30 mil. CZK - floating a fixace sazby do 1 roku včetně)
Klouzavý průměr/6 (Nefinanční podniky (S.11) - ostatní nad obj. 30 mil. CZK - fixace sazby nad 1 rok do 5 let včetně)
9th September 2011
Prague
Klouzavý průměr/6 (Nefinanční podniky (S.11) - ostatní nad obj. 30 mil. CZK - fixace sazby nad 5 let)
40
WACC - result
DSO electricity
Parametrets
TSO electricity
Value
Parametrets
Value
rf = risk-free rate of return
4,55%
rf = risk-free rate of return
4,55%
ßunlevered = unweighted beta
0,350
ßunlevered = unweighted beta
0,300
ERP =market risk premium
6,40%
ERP =market risk premium
6,40%
D = debt
40%
D = debt
30%
T = tax rate
19,0%
T = tax rate
19,0%
rd = cost of debt
5,12%
rd = cost of debt
5,02%
WACC - nominal value adjusted by the tax effect
(before tax)
7,974%
WACC - nominal value adjusted by the tax effect
(before tax)
7,673%
DSO gas
Parametrets
TSO gas
Value
Parametrets
Value
rf = risk-free rate of return
4,55%
rf = risk-free rate of return
4,55%
ßunlevered = unweighted beta
0,400
ßunlevered = unweighted beta
0,350
ERP =market risk premium
6,40%
ERP =market risk premium
6,40%
D = debt
40%
D = debt
30%
T = tax rate
19,0%
T = tax rate
19,0%
rd = cost of debt
5,12%
rd = cost of debt
5,02%
WACC - nominal value adjusted by the tax effect
(before tax)
8,339%
WACC - nominal value adjusted by the tax effect
(before tax)
8,046%
9th September 2011
Prague
41
WACC - limits
8,90%
8,70%
8,50%
limit
8,30%
calculated WACC
valid WACC
8,10%
limit
7,90%
7,70%
7,50%
2010
9th September 2011
2011
2012
Prague
2013
42
Quality regulation

Measured with the help of a combination of the SAIDI
and SAIFI





indicators, represented in the same proportion 50:50,
Bonuses/penalties are expected to be applied no earlier
than from the third year of the third regulatory period (2013
- 2014)
Data collection from 1st January 2009
Bonuses or penalisation will be related to the level of profit
Preliminary parameters:


The insensitivity band: ± 5%
Maximum penalty/bonus at 15% of failure/improvement: ± 3% of
profit for the respective regulated year
9th September 2011
Prague
43
Quality regulation
ERO will apply quality regulation according to the
figure bellow
9th September 2011
Prague
44
Quality regulation
9th September 2011
Prague
45
Regulation of quality of service
commercial quality
continuity of supply
voltage quality (EN 50 160)
Basic tools for quality regulation:
 Publication of quality of services report
 Exercising guaranteed standards services


Penalty for infringement
Incentive mechanism

Modification of Allowed Revenues on the basis of some criteria:





Continuity of supply
Frequency of interruptions and duration of interruptions
Customers complaints
Index of customer’s satisfaction
Losses of networks
Etc.
Prague

9th September 2011
Weighted
criteria can
be used
46
Integrated incentive regulatory scheme
generally:
ARt = ARt-1 * (1+RPI-X) ± Q
AR – allowed revenues
RPI (CPI) – inflation
X – factor efektivity
Q – financial bonus or penalty
Way of setting–up bonus or fine:
Q = ΔARt = PQ * (SQ – DUQt-2)
PQ - price of quality
SQ - requested level of quality indicator (standard)
AQ – actually reached level of quality indicator
9th September 2011
Prague
47
Dependency of allowed revenues
on quality services
Standard level of quality indicator
Bonus
SQ
actual level
of quality
indicator
PQ
AQ
Low
quality
High
quality
ΔAR
Angular coefficient
Fine
Necessary to know the quality price PQ (on the base of research)
 Amount of losses (financial) caused by electricity shortage
 Willingness to pay for elimination of blackout (WTP)
 Willingness to accept compensation for shortage (WTA)
9th September 2011
Prague
48
Prices of quality
Country
Quality price
Great Britain
4,18 €/kWh
Ireland
7,2 €/kWh (2000)
Italy
10,8 €/kWh (households)
21,6 €/kWh (others)
Norway
7,90-5,51 €/kWh (industry)
11,86-8,14 €/kWh (services)
1,8-1,2 €/kWh (agriculture)
0,96-0,84 €/kWh (households)
1,56-1,2 €/kWh (public sector)
1,56-1,32 €/kWh (energy intensive industry)
Portugal
1,5 €/kWh
Sweden
12-8,6 €/kWh, 2,5-0,4 €/kW (urban)
8,8-6,3 €/kWh, 1,9-0,3 €/kW (suburban)
7,4-5,2 €/kWh, 1,6-0,2 €/kW (rural)
Netherlands
21 €/kWh
Source:Third Benchmarking Report on Quality of Electricity Supply, 2005
Service Quality Regulation in Electricity Distribution and Retail, 2007
9th September 2011
Prague
49
Penalization and bonification limits
Standard level of quality indicator
Bonus
SQ
limit
ΔARMax
actual level
of quality indicator
AQmin
Low
quality
AQ
High
quality
AQmax
ΔAR
PQ
Angular coefficient
ΔARMin
Great Britain, Ireland,
Netherlands
Fine
9th September 2011
Prague
50
Limits for Bonuses and Fines
Country
Bonus
Fine
Hungary
Max 10% AR
Max 3% AR
Massachusetts
F(2σ)
F(-2σ)
Philippine
2,5% AR
2,5% AR
Netherlands
5% AR
5% AR
Ireland
4% AR
4% AR
Great Britain
3% AR
3% AR
9th September 2011
Prague
51
Impact on allowed revenues
Standard level of quality indicator
Bonus
SQ
limit
ΔARMax
actual level
of quality indicator
AQmin
Low
quality
AQ
High
quality
AQmax
ΔAR
PQ Angular coefficient
ΔARMin
Neutral zone
Fine
Portugal +12/-12 %, Italy +5/-5 %, Hungary +5/-10 %, Massachusetts +σ/-σ
9th September 2011
Prague
52
Regulation of quality for III. Regulatory Period
in the Czech Republic



work with foreign regulators experience
feasible administrativ and procedural requests
proposed indicator of general quality

0,5 x SAIDI + 0,5 x SAIFI




Neutral zone ± 5 %
Limits for quality indicator ± 15 %
Max. bonus / fine ± 3 % of profit
CAIDI=SAIDI/SAIFI (minutes /interruption/year) – integral, but dangerous !

Individual setting-up on the base of multi-annual average
It is necessary to check validity of data for setting of standards !

Individual compensations have been used since 2006 and will be made more
restrictive for III. RP (urban, suburban, rural)
Bonuses/penalties within regulatory formula are planed to be established from
3rd year of the III. RP (2013) on the base of data from 2009 - 2011

9th September 2011
Prague
53
Renewable energy sources
9th September 2011
Prague
54
Share of RES-E on gross domestic
consumption in the Czech Republic
Indicative target for 2010 was 8 %
Preliminary result
9
8,2
8
6,8
7
6
Floods in 2002
lots of hydros had to be repaired
5
3,8
4
3
4,7
2006
2007
4,3
[% ]
5,2
4,9
3,8
3,2
2,8
2,1
2
1
0
2000
2001
9th September 2011
2002
2003
2004
2005
Prague
2008
2009
2010
55
Main principles of renewable energy support
Act No. 180/2005 Coll. on renewable energy support

renewable energy producers have priority access to electricity
grid
 producer can choose between two types of support
Fixed feed in tariff
 buyer is a distribution or a
transmission company
 15 years payback period of
investments is guaranteed
 price adjustments related to
inflation
 maximum 5% decrease yearly
 not applicable to electricity from
combined fossil fuel and biomass
combustion
9th September 2011
Prague
Green bonuses
 buyer is a trader or a
customer
 distribution or transmission
company pays green bonus
to producer
 no long- term price
guarantees
 higher risk for producer but
higher profit possible
56
Feed-in tariffs and Green bonuses in practice
1. Feed-in tariffs : Income = Feed-in tariffs
producer
Financial settlement <– Feed-in tariffs
Electricity physical flow
Distribution
System
Operator
2. Green bonuses : Income = electricity market price + Green bonuses
Financial settlement –> market price
Electricity
trader
Financial settlement <– green bonuses
producer
Electricity physical flow
9th September 2011
Prague
Distribution
System
Operator
57
Share of RES-E categories in 2011
(result of estimation is reflected in real prices)
Share on total RES-E production
Production
Hydro
16%
Biogas
22%
X
Support
Biomass
29%

Wind
8%
PV production represents
only 25 % of all renewables
Photovoltaics
25%
Share on total costs
Photovoltaics
68%
Hydro
5%
X

PV support represents
68% on total costs
19,085 bil. CZK
9th September 2011
Biogass
10%
Prague
Biomass
15%
Wind
2%
58
Solar Power – a hot issue

investment costs were falling very quickly (30 – 40 % per year)

However ERO was able to cut Feed-in Tariffs for Solar Power only
by 5 % per year according to the “green“ act

it caused the huge development of Solar Power in the Czech
Republic in 2009 and 2010

3 new amendments of The Green Act were adopted in 2010

April – 5 % annual decrease of feed-in tariff shouldn't be applied if return
of investments is shorter than 11 years

November – any new installations over 30 kW are subject to support
from 1st March 2011

December – imposed tax on installation commissioned in 2009 and 2010
to cover negative impacts on final customers` prices
9th September 2011
Prague
59
Solar Power – negative impact on customers

the real price for meeting extra cost incurred in support of electricity from
renewable sources, combined heat & power, and secondary sources in 2011 is
equal to 24 EUR/MWh (578 CZK/MWh)

the current price is equal to 15 EUR/MWh (370 CZK/MWh) after intervention of
the Czech Government in 2010 – 12 bil. CZK subsidy from the state budget
24
25
[EUR/MWh]
20
15
15
10
6,79
5
2,13
1,15
1,39
1,66
0
9th September 2011
2006
2007
2008
Prague
2009
2010
2011
60
Total costs of RES-E support
in 2010 and 2011(estimated)
800
700
mil. EUR / year
600
500
400
300
200
100
0
2010
Hydro
9th September 2011
Photovoltaics
2011
PragueWind
Biogas
year
Biomass
61
Feed-in tariffs for small photovoltaics in
neighbouring countries in 2011
[€/MWh]
350
305,81
300
250
200
150
380,00
287,40
167,40
123,60
100
Czech Republic
9th September 2011
Slovakia
Germany
Prague
up to 30 kW
buildings
with own
consumption
up to 30 kW
buildings
with own
consumption
up to 30 kW
buildings
up to 100
kW
0
up to 30 kW
buildings
50
330,00
buildings
above 20 kW
400
387,65
buildings 5 20 kW
450
investment subsidies
471,15
up to 5 kW
500
level of support in year 2010
Small photovoltaic installations
Austria
62
RES-E generation development
Production [MWh]
9 000 000
Estimated production
8 000 000
Hydro
Photovoltaics
7 000 000
Wind
Biomass - pure
6 000 000
Biomass - cofiring
Biogas
5 000 000
4 000 000
3 000 000
2 000 000
1 000 000
0
2000
2001
9th September 2011
2002
2003
2004
2005
Prague
2006
2007
2008
2009
2010
2011 Year
63
Renewable Electricity – future prospects

A new substantial amendment of the Green Act is being prepared

The main characteristics of the current model will be retained (e.g.. 15 years
payback period of investments and transferred responsibly for deviations)
Differences:
Current system
 buyer is a distribution or a
transmission company
 feed-in tariffs are applied on all
installations
 extra costs to cover by final
customers are calculated from
estimated yearly price of electricity
The new system
 buyer is a dedicated trader
 feed-in tariffs are applied only on
small installations
 extra costs to cover by final
customers are calculated from
real hourly spot prices

Support will be subjected to targets set by National Action Plan

If the target of a specific category is met there is no support for new installation
9th September 2011
Prague
64
Thank you for your attention
Blahoslav Nemecek
Vice-chairman and Director of Regulation Section
Energy Regulatory Office
+ 420 255 715 541
blahoslav.nemecek@eru.cz
www.eru.cz
9th September 2011
Prague
65