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Czech Republic: Energy and electricity profile(IndustryWire Via Thomson Dialog NewsEdge) FROM THE ECONOMIST INTELLIGENCE UNIT Profile articles provide a concise overview of an industry in a particular country. They are designed to brief senior executives on key local players, on demand and consumption, and on supply and production. 2001(a)2002(a)2003(a)2004(a)2005(b)2006(b)Energy consumption (m tonnes oil equivalent)434244454547Energy consumption (kg oil equivalent per head)4,1634,1094,3164,3854,4124,556Electricity consumption (bn kwh)(c)565557596164Electricity consumption (kwh per head)5,4405,4255,5135,7425,9916,266Petroleum consumption ('000 b/d)177174186203200202Coal consumption (m metric tonnes)625959585861Refined petroleum products consumption ('000 b/d)177174182(b)185(b)184188Natural gas consumption (m cu metres)9,8959,5529,6589,6009,6579,965(a) Actual. (b) Economist Intelligence Unit estimates. (c) Includes net imports.Source: Economist Intelligence Unit.Overview The Czech Republic is an importer of oil and gas, relying heavily on Russian oil and gas imports, but is a net exporter of electricity. The main domestic source of energy is coal, accounting for around half of primary supply. At the current rate of extraction, reserves of anthracite (hard coal) will be exhausted before 2010, with brown coal (lignite) deposits lasting for a further 25 years. The energy industry is largely state controlled, with privatisation limited to the gas sector. In recent years state-owned companies have increased their hold over the power sector. A shift towards oil, nuclear power and natural gas was under way during the latter stages of the communist regime, leading to rising dependence on the Soviet Union. Russia continued to be the only source of oil until the completion of a pipeline from Ingolstadt in Bavaria (Germany) in 1995. Under a contract signed in May 1997, more than 20% of the country's natural gas needs will be supplied from Norway over the coming 20 years, making further inroads into the Russian monopoly. Total installed electricity-generating production in 2005 was 82,578 gwh, two-thirds of which came from conventional thermal sources and the remainder from hydroelectric and nuclear energy. Generation from nuclear power stations has risen strongly since 2000, as the Temelin nuclear plant has slowly come to full capacity, although frequent shutdowns caused production to fall in 2005, to 24,728 gwh, from a peak of 26,325 gwh in 2004. Demand Energy consumption has remained relatively stable over the past decade, and was 44.9m tonnes oil equivalent in 2004, compared with 39.3m tonnes oil equivalent in 1994. This is because the closure or restructuring of some of the country's large, energy-intensive industries was offset by strong economic activity. Nevertheless, the Czech economy is still highly energy intensive, requiring three times as much energy as Austria or Germany to produce each US dollar of its GDP. The Czech Republic is a net importer of oil and gas and is a net exporter of electricity. Most of the domestic demand for oil and gas is met through imports from Russia; Hungary is a major export market for electricity. Coal, which is used to generate power, dominates consumption, accounting for about 46% of total energy consumption in 2005, according to BP (UK). Nevertheless, demand for coal has declined sharply since 1990, as power generation, the largest domestic customer for coal, has become much more efficient. About 20.5m tonnes oil equivalent of coal was consumed in 2005 (compared with 23.2m tonnes oil equivalent in 1994), with nuclear power consumption at 5.6m tonnes oil equivalent in the same year. Oil consumption reached 9.9m tonnes in 2005, according to BP, or 22.3% of total energy consumption, and natural gas consumption stood at 7.7m tonnes oil equivalent in 2005. In January 2002 the Czech Republic started the liberalisation of its electricity and gas markets for about 60 companies with annual consumption of over 40 gwh. Since 2003 competitive supplier selection has been available to smaller companies (consuming over 9 gwh annually), which covers another 250 companies. In April 2004 the government approved an energy law to accelerate the timetable of power and gas market liberalisation in line with EU directives. For electricity, all businesses have been able to choose their own suppliers since January 2005, and supplier choice was extended to households later the same year. For gas, from January 2005 certain business users had open access. This deregulation was extended to all customers apart from households in January 2006. Households have had the option of choosing their supplier from January 2007. Natural gas transmission has been unbundled and gas distribution was unbundled in December 2006. 2001(a)2002(a)2003(a)2004(a)2005(a)2006(b)Nominal GDP (US$ bn)(c)61.875.391.4108.2124.0137.0Population (m)10.210.210.210.210.210.2GDP per head (US$ at PPP)14,56015,12515,92717,08318,68820,380Private consumption per head (US$)3,1053,7384,5575,2865,9346,664Number of households ('000)3,8283,817(b)3,804(b)3,792(b)3,785(b)3,774(a) Actual. (b) Economist Intelligence Unit estimates. (c) Not seasonally adjusted.Source: Economist Intelligence Unit.Pricing ItemPrice (US$)% of monthly personal disposable incomeAffordability rankElectricity, monthly bill for family of four (av)27.785.874 out of 55Gas, monthly bill for family of four (av)27.785.8713 out of 49Water, monthly bill for family of four (av)13.352.825 out of 49Heating oil, 100 litres (av)38.038.0317 out of 23Regular unleaded petrol, 1 litre (av)1.420.3037 out of 58Note. Affordability rank: for each country the price of an item as a percentage of monthly personal disposable income is calculated. Countries are ranked according to these percentages. The most affordable country will have the lowest percentage and be ranked first.Supplyoil, gas and coal The Czech Republic has limited oil and gas resources and is heavily dependent on Russia for the supply of these fuels. In 2006 the country had proven oil reserves of 15m barrels, the second-lowest level among Visegrad countries, according to the Energy Information Administration (EIA). Despite the low level of reserves, Carpathian Resources (Australia) has been conducting exploratory work in the Czech Republic's western Carpathians. The company has also been producing oil, but only sporadically, owing to water influx and poor weather conditions. According to the EIA, the Czech Republic produced only 15,240 barrels of oil a day in 2005, with about 95% of domestic consumption being met with imports. Russia was the only source of oil until the completion of a pipeline from Ingolstadt in Bavaria (Germany) in 1995, which brings oil from Iran and North Africa. Ceska rafinerska is the Czech Republic's largest crude oil refinery, and owns and operates two refineriesKitvinov and Kralupywhich have a combined capacity of 178,000 barrels/day. A pre-requisite for EU membership obliges the Czech Republic to provide for 90 days of storage capacity. To meet this requirement, CR Mero owns and operates the country's central oil storage facility in Nelahozeves. As with oil, natural gas reserves and production is negligible compared with domestic demand. Until recently Russia was the primary exporter of gas to the Czech Republic. However, in a bid to reduce dependence on one country, gas is now being imported from Norway and Germany as well. Total natural gas reserves in 2006 were 530bn cu feet, with production of just 5bn cu ft in 2003. Most of the natural gas reserves are located in the southern part of the country near the border with Austria. Natural gas is set to become an increasingly important component of the Czech Republic's energy mix, owing to the need to meet the EU's membership criteriawhich requires less use of coal in order to meet the EU's stricter regulations on energy use and the environment. Natural gas consumption accounted for 17.3% of the Czech Republic's total energy consumption in 2005, according to BP. RWE Transgas (Germany) is the leading gas company. Previously Transgas, the Czech government sold its majority stake in the firm to RWE Gas (Germany) in May 2002. This stake, together with stakes of up to 50% in the eight regional distributors that were included in the sale to RWE, resulted in revenue to the state of 4.1bn. Transgas owns a pipeline that provides 20% of western Germany's natural gas and transports 34% of all Russian gas exports. Primary activities include procurement and distribution of natural gas in the Czech Republic and transit of gas to Western markets. There are just over 50,000 km of gas pipelines, which are owned by Transgas and other regional distribution companies. Coal production reached 23.5m tonnes oil equivalent in 2005, with proven reserves of 5,552m tonnes in 2005, according to BP. Coal accounted for about 46.2% of total energy consumption in 20045. Production exceeds domestic demand and some amount is exported, mainly to Slovakia, Germany and Austria. Both brown and black coal are mined, with the former mined by three companies in north Bohemia as a key source of energy for electricity generation, and the latter by one company in north Moravia, primarily for coking in the steel industry. Like many industries, coal mining entered the 1990s oversized. Unlike other sectors, however, the industry has seen extensive state-led restructuring of production under a plan formulated in 1992. By 1995 the country's small coal seams were closed and all the main companies had sharply reduced employment levels. At the current rate of extraction, reserves of anthracite (hard coal) will be exhausted before 2010, with deposits of brown coal (lignite) lasting for a further 25 years, even though the main electricity producer in the Czech Republic, Ceske energeticke zavody (CEZ), wishes to expand coal-burning plants. The start-up of the Temelin nuclear power station in September 2000 implies that further downsizing will become unavoidable. The two state-controlled coal companies are in good financial condition as a result of diversification into gas production and closer proximity to power plants, with the largest lignite producer, Severoceske doly (SD), consistently making annual profits in excess of Kc1bn (US$31m). In December 2005 CEZ purchased an additional 55.4% stake in SD for a sum of Kc9bn (CEZ previously had a 37.2% stake in SD), and in June 2006 it bought out the remaining minority shareholders to become SD's sole owner. CEZ is to launch programmes for the renewal of part of the coal resources, into which it will invest some Kc100bn in coming years. CEZ and SD are interconnected, as CEZ buys about 80% of SD's production, and these supplies cover 60% of the coal consumption in CEZ power utilities. Useful web links MND: www.mnd.cz RWE Transgas: www.rwe-transgas.cz/transgas.en Ceske energeticke zavody: www.cez.cz Supplypower The Czech Republic maintains a sophisticated power system and serves as a major supplier of electricity to central Europe. Electricity exports have become an increasingly important source of foreign exchange. Major importers of power include Germany, Austria and Slovakia. However, following several years of steady growth, electricity production shrank by 2.1% in 2005 and was 82.6m mwh, according to the Czech Statistical Office. Of this, 25m mwh was exported, a year-on-year decline of 2%. The Czech Republic has fewer hydropower resources to generate electricity than does neighbouring Slovakia. As a result, power generation is heavily dependent on fossil fuels such as coal and oil, with these sources accounting for about two-thirds of power generated. Dependence on nuclear fuel for power generation is increasing, with thermonuclear power now accounting for over 30% of total power generated, compared with 20% in 2001. There is an inherited bias towards energy-intensive industries and inefficient use of electricity that began when power and its inputs were subsidised. Heavy reliance on coal has led to severe environmental damage. Previous governments sought to bridge the energy gap and address pollution problems with the most ambitious nuclear power programme in eastern Europe. However, construction was fraught with delays, owing to poor project planning and organisation, as well as escalating costs connected with increased safety requirements after 1989. The Temelin power station in southern Bohemia was started in 1983 with a planned completion date of 1987, but its first reactor was brought on stream only in September 2000, after the plant's original Soviet design was heavily modified to accommodate technology from Western suppliers. The government decided to complete the project, given that much of the estimated cost of Kc110bn (US$3.4bn) had already been spent or committed. Much of the electricity may be exported, as the plant's capacity exceeds consumption needs at present. It could also replace coal-fired plants that burn the highly polluting brown coal supplies in the Czech Republic. The Czech Republic has another nuclear power plant, Dukovany. The two plants accounted for 30% of CEZ's installed generation capacity and generated 42% of the company's power production in 2003. The Czech Republics nuclear power programme has periodically led to tensions with neighbouring Austria. In mid-2005 an incident revolved around statements by the Czech Ministry of Industry and Trade that it wanted to expand nuclear generating capacity at Temelin, perhaps doubling capacity. This was immediately greeted by protests from the Austrian government. Another incident, a leak of radioactive water in June 2005, led to strong reactions in Austria, but the leak was subsequently found by an EU investigation committee to have posed no danger. The Czechs were nevertheless incensed that the investigation was conducted at all. Most recently, in early December 2006, a group of Austrian demonstrators blocked two border crossings for several hours, demanding that the Temelin nuclear station, located 60 kilometres from the border, be closed. The latest dispute concerns compliance with the 2001 Melk agreement, in which Austria agreed not to veto the Czech Republics EU accession and to halt border blockades in exchange for continual upgrades of Temelins safety and detailed consultations concerning its operation. Temelins Austrian opponents, including government members, argue that the Czech side failed to carry out all of the promised upgrades before the plant, which has been operating since 2000, received final certification at the beginning of November. The official Czech position is that safety procedures and consultations concerning Temelin meet the Melk agreements requirements, and that it is the Austrian side that is in violation by permitting the recent border blockades. State-owned CEZ is the leading power-generating firm, accounting for about three-quarters of the electricity generated in 2003. It operates the Czech Republic's two nuclear power plantsTemelin and Dukovanyin addition to ten coal-fired plants, 11 hydropower plants, two wind plants and a solar plant. It also holds majority stakes in five of the country's eight regional electricity distributors. E.ON (Germany) owns and operates two regional distributorsJME and JCE. In accordance with the country's anti-monopoly regulations, CEZ announced a tender for its 34% stake in Prazska energetika (PR), the regional distributor for the capital, Prague, in May 2004. The J&T Group was selected, and the company bought the share in PR for US$171m. Other stakeholders in PR include a joint stake of 50.8% by Germany's Energie-Baden Wurttemberg (EnBW) and RWE, and a minority stake by the city of Prague. Several west European energy firms have built up large stakes in the electricity distributors, and had complained that the state's plan to keep distributors bundled with CEZ was discriminatory. Nevertheless, CEZ took control of five out of eight distributors in 2003. CEZ aims to expand beyond the domestic market to establish itself as the largest power company in central Europe. In 2006 it acquired coal and other companies in Poland, Bulgaria and Serbia. The main party in government would like to privatise a 7% stake in CEZ in 2007, but this is uncertain, since the opposition opposes the sale of the state's stake in the company. The national power-transmission grid is managed by CEPS, a subsidiary of CEZ. Besides domestic transmission, CEPS manages co-ordination with the systems of neighbouring countries via crossborder tie lines under the aegis of the Union for the Co-ordination of Transmission of Electricity (UCTE). All businesses have been able to choose their own electricity suppliers since January 2005, and supplier choice was extended to households later the same year. Useful web link CEZ: www.cez.cz SOURCE: The Economist Intelligence Unit Copyright 2007 Economist Intelligence Unit |