Czechia

To decarbonise the energy sector while maintaining a secure and affordable energy supply, urgent and concerted actions are needed from investors, financiers, households and all other stakeholders. While the government approved the National Energy and Climate Plan and conducted analysis and public consultations to revise the State Energy Policy and the Climate Protection Policy, these two important documents have not yet been officially approved. The government developed several sectoral documents including strategies (on Hydrogen and Long-term Building Renovation), action plans (on Smart Grids, Clean Mobility and CCUS) and roadmaps (on Small Modular Reactors and Large Research Infrastructures). In the absence of an overarching energy policy, however, market players lack clarity on the coherence, consistency and hierarchical relations between various sectoral strategies and visibility on its strategic directions. The Czech government should adopt national energy and climate policies without delay to provide the necessary guidance and predictability to the market players.

The relatively negative public perception of the energy transition complicates the adoption of new policies. While energy prices are a politically sensitive issue in many countries, in Czechia this sensitivity contributes to delays in important policy decisions in the areas of energy and climate. There is a need to improve communication to raise awareness and public acceptance of the needed changes. Targeted communication campaigns should underline additional benefits of the transformation, such as clean air, better health, local economic development, energy security and self-sufficiency. These campaigns should be conducted by trustworthy institutions in transparent and deliberative ways and build upon successful examples, such as the Green Savings Programme. The public should be informed that energy efficiency improvements and the use of low-carbon heating can offset the expected growth in the heating fuels prices under the ETS2. It is also necessary to highlight the positive role the ETS and other EU instruments play in financing Czechia’s energy transition, for example via the popular Green Savings Programme.

Recent regulatory and institutional reforms have introduced many positive changes in Czechia. However, lack of capacity, digitalisation, and targeted training to develop new skills in government institutions and permitting authorities have contributed to delays in implementing the energy and climate policies and the stagnant development of renewable energy projects. Moreover, local authorities delay or reject energy projects due to public opposition, which is often due to low awareness. Another challenge reported by many stakeholders is the weak enforcement of rules and regulations, such as the emissions standards for vehicles or energy performance standards for buildings.

Government agencies have an increasing amount of work to address national challenges, meet international commitments and implement EU legislation, with limited human and financial resources. For example, the Ministry of Industry and Trade does not have sufficient energy modelling capacity and has been outsourcing modelling tasks to external consultants. In 2025, the government approved an initiative to create a Czech modelling centre to provide an analytical basis for policy making and ensure a co-ordinated and continuous approach to modelling. Czechia should pursue this commendable initiative.

National, regional and local authorities must be equipped with the necessary human and financial resources, skills, awareness, and tools to fulfil their obligations and manage procedures in a timely manner. The government should strengthen all relevant institutions’ capacities to enable them to develop and implement policies, enforce regulations, and accelerate permitting and authorisation procedures.

Electrification of end-use sectors offers a dual benefit of reducing emissions and saving energy. The overall electrification rate of 19% in Czechia is below the EU average of 22%. Heat pumps and electric boilers are mature technologies to electrify residential and industrial heating and cooling. However, high electricity prices, and particularly high electricity-to-gas price ratios, which in 2024 were around 3:1, hinder the broader adoption of these technologies by Czech consumers, even though Czechia is one of the largest global manufacturers and exporters of heat pumps. Electricity prices in Czechia consist of an energy component, grid fees, and taxes and levies. Each of these components offers potential levers to reduce costs and make electrification more economically viable:

Continue to support smart metering, time-of-use tariffs and dynamic tariffs to reduce peak demand and lower system costs. This will enable demand-side flexibility, real-time responsiveness to market signals and cost savings for consumers who shift use to off-peak hours.

Continue supporting renewable energy by enabling competitive auctions and corporate power purchase agreements, which would contribute to lowering average wholesale prices. Consider shifting the levy for renewable energy support from the electricity price to the general budget, as in Finland, France, Germany and Malta, or to the gas price, as discussed in the United Kingdom.

Implement a planned network tariff reform to more fairly and more transparently distribute costs between consumers and energy producers. In addition, review the distribution companies’ allowed revenues where necessary: reviewing the asset base and depreciation policies, and extending the lifetime of assets can deliver great savings.

Consider using the ETS revenues from the Modernisation Fund or other funding sources for investments to reduce grid-related costs. Poland and Romania have used this approach.

Consider fiscal instruments to decrease electricity end-use prices such as a reduced value-added tax rate for electricity and taxing fuels based on their energy content and CO₂ intensity.

Efforts to reduce electricity costs should be accompanied by measures to protect vulnerable consumers with targeted aid, social programmes and subsidised energy‑saving measures. In addition, well-designed communication and stakeholder engagement campaigns are important to reduce public opposition to pricing and taxation reforms.

Energy consumption and emissions in the transport sector are steadily increasing, and the sector is expected to become the largest source of energy-related CO₂ emissions by 2027. Decarbonising transport is, therefore, a critical part of Czechia’s energy transition strategy. Czechia should significantly ramp up efforts in this sector, applying a combination of comprehensive policies including urban planning, car sharing and other measures to reduce transport needs, encouraging the shift to cleaner transport modes such as public transport and EVs, and improving the efficiency of the current fleet through, for example, scrappage programmes to remove the most polluting cars.

Electric vehicles (EVs) are expected to play a key role in decarbonising transport. Skoda is one of best-selling electric cars in Europe and increased demand for EVs in Czechia could contribute to strengthening the domestic automotive industry even further. The key barrier is the relatively high purchase price of EVs, especially compared to the popular second-hand internal combustion engines. All leading EV markets offered support to address the purchase price barrier. This support should be gradually phased out when EVs become cost-competitive.

Czechia should prioritise EV support for corporate and public fleets through loans, fiscal policy and procurement rules. Corporate cars represent 75% of new registrations – the second-highest in the European Union, well above the EU average of 60%. This highlights companies’ key role in shaping the Czech car market. Corporate support programmes could also specifically target taxis and urban delivery companies, which are sensitive to costs and policy incentives. As corporate EVs are often sold after a few years, they can boost the second-hand market. Although businesses may worry about low resale values, fiscal incentives can help mitigate these concerns. As for public institutions, they should prioritise EVs in procurement to set an example, following or exceeding the EU Clean Vehicles Directive’s requirements.

Preferential loans and loan guarantees for the purchase of EVs, such as Scotland’s EV loan programme, can help bridge the gap of higher purchase prices. Low-cost financing would allow businesses to invest in EVs and use the cost savings from the operation to help repay the loan. While the total cost of ownership of EVs is generally attractive, it can be lowered further through fiscal policies such as targeted tax benefits. The Czech toll system for trucks and vans with a permissible weight of more than 3.5 tonnes integrates environmental parameters, thus fulfilling the “polluter-pays” principle. However, the government has limited ability to encourage the use of low‑carbon personal vehicles because Czechia is one of the few countries without annual taxation for personal car ownership. Czechia could consider introducing taxes for polluting vehicles: this would provide an incentive for EVs and would also encourage public transport and active transport. Germany and the United Kingdom are among the countries that have succeeded in increasing the market penetration of EVs thanks to taxation. Besides accelerated depreciation, Czechia might consider other corporate tax breaks related to the EV fleet. To avoid tax erosion, a tax-neutral bonus-malus system could be introduced, where enterprises with a corporate fleet consisting of EVs are granted a bonus, which is paid for by enterprises without EVs.

With the accelerated phase-out of coal, determining how to maintain supply adequacy and reliability is a key consideration. Government measures may be needed to support electricity and heat supply over the next several years, especially in winter, as approximately half of Czechia’s heat supply is sourced from coal.

The government has introduced legal provisions that allow coal-fired plants in operation to be maintained in the case of supply shortages and is planning a capacity mechanism to attract investment in combined-cycle gas plants. While it will be necessary to use support mechanisms to maintain the security of supply, it is important to devise these instruments transparently and with a defined end date and phase-out procedure to limit market distortion, provide visibility to investors and respect decarbonisation targets. If a market-wide capacity mechanism is considered, it should provide incentives to a range of technologies, including energy storage and demand-response management.

The energy security considerations should reinforce the government’s efforts to significantly scale up electricity production from renewable sources. As there is uncertainty around the dispatchable generation capacity that will be available over the next decade, the government is encouraged to model demand for natural gas under different scenarios and work with stakeholders to ensure that they have clarity over the long-term role of natural gas, relative to other energy sources. Czechia must not rely primarily on natural gas power plants to address the generation gap because this would risk fossil fuel lock-in. More investment in gas-powered plants than strictly necessary risks stranding assets and exacerbating the gas phase-out challenge in the longer term.

Therefore, when designing support schemes for fossil fuel-fired generation, the government should first consider alternative low-carbon options. Coal plants can be retrofitted to enable the use low-carbon fuels such as solid biofuels and waste in the short term or ammonia in the longer term. It is urgent to impose and enforce a landfill ban for municipal waste and support waste incineration as a short-term replacement for coal, especially in district heating (see Focus area 2). Biogas and biomethane can also contribute to energy security, especially for heat, when used in co-generation installations. It makes sense to encourage the production of biomethane in summer and its storage for winter use to address demand seasonality.

Renewable deployment in Czechia has been slow, driven mainly by biofuels and rooftop solar PV, with wind still at a very early stage. This limits Czechia’s access to low-cost electricity amid supply shortages. Recent praiseworthy legal reforms (LEX RES I, II, III) mark strong government action to ease investment barriers, particularly by facilitating permitting. Attention must now turn to ensuring the timely and effective implementation of the new legal framework and resolving outstanding challenges that could hinder further progress:

- Introduce and enforce binding renewable energy targets in electricity generation.

- Ensure the swift implementation of the renewable acceleration zones and mandate municipalities to designate a minimum share of land for renewables in their spatial planning. Spatial planning can recognise repurposing open pit mines for the deployment of renewable energy projects and underground mines for thermal storage.

- Create a one-stop shop to streamline permitting, including for grid connection for industrial electrification projects. 

- Consider introducing mechanisms to boost public acceptance of renewable projects, such as early public participation and benefit-sharing schemes. An example of this is Ireland’s Community Benefit Fund, which has successfully improved local support. 

- Establish clearer frameworks to encourage rooftop solar PV grid injection instead of curtailment.

- Regularly plan and implement competitive auctions for utility-scale renewable projects. Publishing at least a five-year plan on the allocation of support for renewables, including an easily accessible calendar with auction dates and volumes, such as in Germany, will increase investors’ confidence.

- To unlock additional private investments, improve the enabling environment for corporate power purchase agreements (PPAs): help ensure fair and transparent grid access and wheeling arrangements for physical and virtual corporate PPAs, and together with renewable associations and financial institutions provide tools to help manage project and off-taker risks. Countries such as Norway and Spain and the EIB offer guarantee schemes for this purpose.

- Implement additional measures to reduce connection queues by addressing reserved but unused grid capacity through stricter project maturity requirements, such as “first‑ready-first-served” provisions, auctions, “use-it-or-lose-it” provisions with clear time frames, requiring all permits and financing before granting grid access, and regular reviews of allocated grid access rights by system operators and the energy regulator.

Growing shares of solar and wind energy need to go hand-in-hand with the development of a flexible power system. Power system flexibility can be enhanced through a combination of non-fossil instruments including low-carbon dispatchable generation, optimised use of the grid infrastructure (including interconnections), energy storage and demand-side response. Czechia is making progress in all these areas, but further actions are required to fully futureproof the electricity system, in particular by maximising the use of energy storage and demand-side management.

Recent legislative advances have laid the legal basis for flexibility, with new provisions including storage and aggregation. Smart meters are being introduced in Czechia, but deployment remains limited, and the penetration rate is among the lowest in the European Union. As smart metering is a pre-condition of demand-side flexibility, the rollout of smart meters should be accelerated, based on broader accessibility of supports.

Promoting demand-side management through dynamic pricing mechanisms – building upon existing flexible tariffs – can incentivise households and large consumers to adjust their energy use in response to price signals. This approach not only enhances grid stability but also aligns consumer behaviour with the availability of renewable energy, contributing to a more sustainable and resilient energy system. Beyond facilitating the integration of variable energy sources, demand-side management can also enhance public acceptance of the energy transition, as citizens become active consumers. To empower citizens and communities to contribute to and benefit from flexibility services, the Energy Data Centre should be implemented quickly and comprehensively.

To meet its energy efficiency targets, Czechia should scale up the renovation rates in all existing buildings. The accelerated renovation of the poorest performing buildings is particularly important, including those in rural areas. Many of the least energy-efficient buildings are situated in low-income regions that face numerous social and economic challenges; therefore, additional support might be needed to encourage renovations. Reducing heat losses in the least-performing multi-apartment buildings connected to DH will have an additional benefit: it would allow DH operators to lower the temperature in the whole network, thereby improving supply‑side efficiency and reducing the heat price. The government could develop a national methodology for identifying and prioritising the least energy-efficient buildings, including mapping tools and databases.

In the residential sector, successful programmes can be improved further to maximise their effectiveness for single-family homes and multi-occupancy buildings. Building upon the Green Savings “Light” Programme that targets low-income households, the Czech government is encouraged to introduce further income-adjusted differentiation of support for single-family homes. While maintaining the same overall budget, the programme can be redesigned to provide several levels of support according to income. The lowest income households will be eligible for the highest share of the subsidy and the wealthiest households will receive no capital subsidy but can benefit from free advisory services. In multi-apartment buildings, inhabitants’ incomes might differ, but low-income households are more likely to live in inefficient buildings. A bonus should, therefore, be given for deep renovations of the least energy-efficient buildings.

For public and commercial buildings, energy performance contracting should be promoted, showcasing the successful projects implemented by several municipal and regional administrations. Czechia has recently removed the legal bottleneck that prohibited central government institutions, such as ministries and state administrations, from procuring a loan, including supplier credit in the context of an energy performance contract. This encouraging reform should be supplemented by implementation support, e.g. creating a database of certified or nationally authorised suppliers and a helpdesk at the federal level to assist building owners in the energy performance contracting process.

In new buildings, it is vital to ensure the implementation and enforcement of stringent efficiency standards. The regulatory requirements should be accompanied by efforts to raise public awareness and encourage the rollout of smart interactive technologies, which can show real-time energy performance and help occupants optimise their energy use.

Czechia lacks clear action plans – at the local and national levels – to decarbonise the heating sector and secure an uninterrupted supply of heat. Several comprehensive assessments have been made; however, the directions and the pace of the sector transformation are not clear to all stakeholders, especially in the longer term. As the planet warms, the use of air conditioners can become another important driver of Czechia’s energy demand. It will be vital to ensure that cooling needs are met in a sustainable way, e.g. with the help of efficiency standards; passive, nature-based and alternative solutions to air conditioners; and improved design of buildings and districts.

While natural gas can be a necessary transition fuel in some areas, more diverse heat production is needed to enable the cost-efficient decarbonisation of the heating sector and security of supply. Czechia, therefore, needs to comprehensively map the local heating and cooling demand and the available sources, including waste heat from industrial processes and data centres; heat from waste incineration; and biomass, solar and geothermal energy. The local plans should also assess the potential for sustainable individual and utility-scale technologies such as heat pumps. The heating and cooling plans should be linked with building renovation strategies, electricity grid planning and industrial decarbonisation efforts.

Local and regional authorities have limited experience and constrained financial, technical and human resources to conduct strategic energy or heat planning. The Czech government should put in place national support (e.g. a helpdesk) to enable the relevant authorities to prepare local plans in a holistic manner in co-operation with utility companies and other affected parties, e.g. companies with special energy and heat needs. After having built the planning capacity in the largest municipalities, the requirement can be gradually extended to smaller cities and towns, with a clear time frame to give them visibility and sufficient time to prepare.

In parallel, the government should use the local plans as the basis for adopting a coherent national heating and cooling action plan, which will enable the use of the least-cost cleaner heat options across the country. For example, in the short term, the government can align solid biofuel-related policies with the heating/cooling sector’s needs and develop strategic planning of future SMR sites to use nuclear heat in local district heating systems in a longer term perspective. The national action plan should provide a framework and methodology for local plans to avoid inconsistencies.

District heating (DH) has long been a cornerstone of Czechia’s heating system. It is positive that the government, the regulator and other stakeholders recognise the essential role DH will play in Czechia’s clean energy transition. The regulatory framework for DH in Czechia has many positive elements aligned with international best practices, but it could be further improved to maintain the sector’s relevance, ensure its competitiveness and facilitate decarbonisation.

The recent regulatory measures to stimulate the modernisation of district heating, demand-side energy efficiency and a fairer distribution of costs are positive and should be further supported and developed. They should go hand-in-hand with targeted measures to encourage and enable consumers to lower heat temperatures. They should also be accompanied by transparent communication to help consumers understand the different components of DH tariffs and compare DH with other heating options, keeping in mind the forthcoming introduction of the ETS2.   

The price-setting methodology on the supply side could be improved to include performance-based components, thus providing explicit incentives for switching to renewable energy and waste, using waste heat and utility-scale heat pumps, implementing temperature reductions in heat networks, and other measures. In Denmark, profit opportunities are available for district heating based on renewable energy, but not for fossil fuel-based production. To enable debt co-financing of decarbonisation investments (in addition to subsidies), the Energy Regulatory Office could consider extending the regulatory period. With the current cost-based regulation only covering a one-year time frame, DH companies would have difficulties procuring a loan to finance decarbonisation investments that have payback periods of several years.