Ondřej Špetík: The new RES support system responds to a crisis and subsidies that were too generous

Support for renewable energy sources (RES) is undergoing a major change. Instead of the purchase prices, as previously guaranteed, a system based on auctions is now being introduced, which should bring greater efficiency, transparency, and price stability for consumers. Doctor Ondřej Špetík and Associate Professor Vilém Pařil from ECON MUNI are looking for ways to set up the new system well and motivate energy producers to use it. Ondřej Špetík explains in an interview what exactly the change in the RES support system brings and what impact it will have on people.

What does it mean that support for renewable energy sources (RES) will now be auction-based? How does the new system differ from the previous one?

Support for renewable energy sources began in 2005 in the form of “guaranteed purchase prices”. This means that any energy producer who met the conditions could obtain a guaranteed price for electric power obtained from renewable sources, so-called green energy. And that price was significantly higher than the market price. By doing this, the state wanted to support the growth of electricity production from renewable sources. It was around 2009, however, when the prices of photovoltaic panels began to fall sharply, making the guaranteed price extremely generous for producers. Only in 2010, the output of solar power plants tripled, leading to a significant increase in the price of electricity for consumers. Therefore, the state scaled down its support for renewable energy sources.

But at the same time, the Czech Republic committed to reducing emissions. The market however now does not offer any method of producing electricity from renewable sources that would make financial sense without public support, so the state is now looking for ways to support green energy as effectively as possible. Legislation has been also approved by the European Union that establishes an obligation for new renewable energy sources to compete in the form of auctions. This means that the state will decide how much renewable energy capacity it wants to install, and producers will compete to offer the lowest price per one MWh of the electricity produced.

What will the new RES support system bring to ordinary citizens?

It will primarily increase the overall efficiency of green energy supply. The new system will be keeping market signals to producers, providing them with more stable and predictable electricity prices. It can protect consumers from high prices, because during periods of high market prices, producers will not be subsidised. The system will instead return the difference between the market price and the guaranteed price to the state, which can then use these funds for mitigating the impact of high prices on consumers. Also, only those sources that require the lowest public support should be built.

Why did the European Union decide to change the RES support system and what does it expect from it?

The main reason was the energy crisis, which revealed the vulnerability of the energy system to external price shocks. Another reason was the long-term effort to accelerate the decarbonisation of the energy sector. Besides more stable and predictable electricity prices, an increase in investment in renewable energy sources by private entities is also expected.

What could jeopardize the success of the auction system? Are there any obstacles in its way?

The low motivation of energy producers to participate in the auction, mainly due to complex and lengthy administrative processes and complicated permit acquisition, may be one such obstacle. The Czech state has been trying to speed up these processes with new legislation. Construction projects however often encounter resistance from local authorities which is understandable.

What exactly will your research focus on?

In our research, we will focus on how to set up the auction mechanism, so that the costs of public support are minimised and the motivational effect of the support maximised. The Brno University of Technology (BUT) and EGÚ Brno will also participate in the research, and together we will create a strategic plan, the so-called roadmap. The roadmap will be the basis for future policies in the area of auctions and support for renewable energy sources, which will include the Ministry of Industry and Trade, the Energy Regulatory Office, and the Ministry of the Environment.

The project “Maximising the motivation of RES use by establishing a framework for an effective form of public support for RES with regard to the use of auctions” is co-financed with the state support of the Technology Agency of the Czech Republic under the THÉTA 2 Programme.