Unleash system flexibility potential of the grid network

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Developing a ‘flagship’ to decarbonize the grid sector Key elements for the flagship analysis What is a flagship?

Key transformative investment opportunities that are priorities for climate action in sector Flagship analysis is accompanied by a set of recommendations for financing and reforms to implement then Example: “add XX thousand solar rooftops by 2025” or “help XX cities decarbonize their district heating & cooling networks by XX”

• Assessment of the progress that can be achieved by the Recovery and Resilience Plan (RRP) against the respective investment needs baseline, discussion of the gaps and how they can be closed through modifications in the RRP and/or the National Energy and Climate Plans, provision of a critical review considering the 2030 and 2050 targets/ relevant strategies • Assessment of contribution for GHG emission reduction

• Review of cost-effectiveness and investment needs (in order to achieve 2030 climate targets) • Reforms: Identify the existing regulatory and non-regulatory barriers to investment in flagship technologies and identify key enabling reforms • Finance: Identifying the role of public and private sector finance to enable implementation of flagships. Opportunities from RRP and EU Green Deal: what's missing and what can be covered by national government or promotional banks

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Overview: Grids in Czechia Unleash system flexibility potential of Czechia’s grid network by 2030 Rationale behind the flagship target • Enhanced grid flexibility avoids investments in new grid lines by freeing up grid capacity which is crucial for the integration of more renewable energy sources (RES) • Czechia currently has low demand-side flexibility (DSF) market activity • Ongoing harmonization of EU electricity markets & first proof-of-concepts from other countries facilitate DSF introduction

Investment need • Total investment need estimated at least € 6 bn (CZK 150 bn)* total smart grid development costs until 2030. The costs include: connecting decentralized production, ensuring necessary network properties, connecting electromobility, smart metering systems and new storage systems • Due to the adjusted EU 2030 RES target, an increase in connecting decentralized production costs is expected

CO2 emission savings • Unleashing Czechia’s DSF capacity facilitates the use and accommodation of more RES instead of conventional power sources with a significant emission reduction potential • Evidence from other countries, e.g. Turkey (30% solar & wind grid accommodation) and Germany study (1.5 Mt CO 2/yr savings) suggest a significant CO2 emission reduction potential through DSF in the grid network • Czechia’s DSF potential was estimated at 5 GW with an additional 1.5 GW option under this flagship of battery storage plants capacity *) Based on National Action Plan for Smart Grids NAP SG 2015 & 2019 update. Number of smart meter costs estimated at € 2 bn instead of € 1 bn due to more recent numbers from 2018 from EU28 Smart Metering Benchmark Revised Final Report , DG Energy European Commission, 2019. Including own estimations for 2,25 GW storage systems.

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Overview: Grids in Czechia Unleash system flexibility potential of Czechia’s grid network by 2030 Total investment needs to transform the grids sector • NECP (2019) investment in transmission system development 2021 – 2030 (investment outlook until 2050 n/a): • €9.3 bn (CZK 233 bn) 2021 – 2030 (also includes investment in smart grids according to NECP) • Split in investments into distribution grid €7.2 bn (CZK 181 bn) and transmission grid € 2.1 bn (CZK 52 bn) • Additional cost for smart grids from National Action Plan Smart Grids (NAP SG 2015 & 2019): estimated €10 bn (CZK 250 bn)* consisting of €6 bn (CZK 150 bn) until 2030 and €4 bn (CZK 100 bn) until after 2040

Role of public vs. private sources in the grid sector • Actors: Transmission system operator (TSO) ČEPS (100% shareholder Czech government) and distribution system operator(s) (DSO) ČEZ Distribuce (70% state owned), E.ON Distribuce (private), PRE Distribuce (private) - public finance is less prominent in grid financing • The increasing investments necessary to integrate RES are mainly financed through debt (e.g. Green Bonds, ČEPS loan from EIB).

Grid operators generate revenue via network fees passed on to the end consumers. Their profits are capped through an incentive regulation by the energy regulatory office (ERO). Investments are compensated through fees.

What is currently committed?** • Connecting Europe Facility (2021 -2027): € 2 bn (allocated specifically for energy infrastructure) • Modernization Fund (2021 – 2027): € 5 bn (partly available for modernisation of energy networks including grids) • European Regional Development Fund (2021 -2027): € 10.3 (potentially available for grids) • RRP: no sources committed to grids *) Number of smart meter costs estimated at € 2 bn instead of € 1 bn due to more recent numbers from 2018 from EU28 Smart Metering Benchmark Revised Final Report , DG Energy European Commission, 2019. Includes investment need estimation for 1,5 GW storage systems. **) Committed funding amounts are estimates from DotaceEU (2020).

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Flagship implementation What is needed to implement the flagship?

Overall priorities: Prepare Czechia to unleash system flexibility potential of Czechia’s grid network by 2030 through regulatory reforms combined with smart grid infrastructure investments Reform 1 – Establish a demand-side flexibility market design • Set up legal framework for DSF services in Czechia as demanded in 2019/944/EC Directive (allow demand-side load participation) • Elaborate a DSF implementation timeline in the upcoming NECP (2021) to derisk upfront private investments and guarantee planning security Reform 2 – Create a level playing field for market participation of the industry sector to unleash 2.5 GW flexibility potential by 2025 • Support similar market entry requirements and decrease of market entry barriers for market participation in DSF services • Enable aggregators to operate fully independent without links to an electricity supplier or balance responsible party to start marketing DSF services to the industry sector Reform 3 – Profit from demand-side flexibility and storage • Create suitable legislation to allow for large energy storage DSF services • Implement 1.5 GWh battery storage projects by 2027 that are co-located with renewable energy plants Reform 4 – Accelerate the smart meter rollout to enable demand-side flexibility in the residental electricity retail sector to unleash 2.5 GW flexibility potential • Start nation-wide smart meter rollout in 2022 for all meter points • Reform the tariff structure and educate the market to establish new flexible electricity consumptions products

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State and developments of the Czech electric grid (I/III) Czech TSO ČEPS 2020 study findings1 → Due to the raised 2030 climate target, it is not likely that the national trends (NT 2030 CZ) or current trends (CT 2030) scenarios will occur since they align with meeting the EU’s previous climate targets1

TSO-Scenario Comparison

→ The distributed energy (DE 2030) and global ambition (GA 2030) scenario is likely the most interesting as it models a decentralized approach to energy mix transformation. Both scenarios aim at reaching the 1.5° target of the Paris Agreement2

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State and development of the Czech electric grid (II/III) → Czech grid infrastructure study findings: Significant Czech grid infrastructure investments will be needed in the coming years underlined by the raised EU 2030 climate target and the Agora Energiewende (2020) study results

→ 2018 study (Energynautics) - No significant grid expansion is required beyond what is planned to operate the Czech grid with 5.5 GW of solar & 2 GW of wind capacities in 2030 despite a coal phase-out1 → 2020 study (Agora Energiewende) - PV capacities assumed in the long term for this study are very similar to the previous study, but wind capacities are significantly higher. This additional onshore wind capacity requires additional investment needs for the grid2

→ Global and EU energy trends: COP26 increases pressure on coal phase-out and raised EU 2030 climate targets (55% GHG and planned 40% RES share target3) call for more RES 9

State and development of the Czech electric grid (III/III)

LOLE (h) – Low-Carbon Sensitivity 2025

→ Mismatch of production capacity development and ensuring electricity balance in the long term1 → Low-Carbon Sensitivity scenario (see figure) indicates reliability difficulties in traditional coal countries such as Poland, Czechia and Germany1 → Very high loss of load expectation (LOLE – statistical expectation that energy supply will not meet demand) value for Baseline Scenario: 42 hours for 2025; 256 hours for 2030 and up to 678 hours for 20401

Source: Czech Government, 2019

Expected development of CZ import dependence

→ Maximum recommended LOLE values are 3 to 6 hours/year – Czechia needs to implement measures to ensure performance balance such as DSF services1 → Czechia is currently a relatively large net electricity exporter1 → Future reduction of exported quantity expected (see graph)

→ Under the current energy transition scenarios, Czechia is expected to shift from exporting 63% in 2020 to only 51% in 20401 Source: Czech Government, 2019

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Consequences and opportunities of electric grid issues in a decentralized energy system Consequences and opportunities of electric grid issues in a decentralized energy system: lessons from Germany → The number of electrical plants in the grid is increasing rapidly – additional generation plants, storage facilities, and new electrical consumers (sector coupling of electricity, heat, transport) are changing the energy landscape1

Energy Transition

→ Grids are not designed for new power classes and their simultaneity. Therefore, the new requirements lead to bottlenecks – especially in the distribution grid – with today’s grid structure. 1 → Grid expansion “down to the last kW hour” leads to high costs1 → Through a grid-serving use of the flexibility of (new) loads, and storage – in addition to grid expansion – bottlenecks in the distribution grid can be controlled1 → For example, in Germany, flexibilities connected in the distribution grid reduce the redispatch costs in the transmission grid by €100 – 150 mln per year 2

Security of supply

Costs and tariffs Source: adapted from Scope Ratings, 2019

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Policy context – National Energy and Climate Plans (NECP) Recovery and resilience plan

Investment (EUR/CZK billion)

→ No resources from the RRP dedicated to grids

NECP – general observations1 Large swaths of the Czech power system need improvement, as highlighted in the NECP

→ Interconnectivity needs improvement to support international trade in electricity

Power plants and accumulation

16.72/418

→ The Czech transmission system needs improvement to handle connections of large generating facilities

Distribution

7.24/181

→ Enhance the transformation capacity to handle distributed generating facilities with low utilization and intermittent generation (as opposed to current large conventional generating facilities with high utilization)

Transmission

2.08/52

Total

26.04/651

→ Prepare the Czech grid to maintain a power surplus with safety margins for emergency situations

Planned investments according to NECP 20191 12

Policy context – National Energy and Climate Plans NECP – electricity market integration plan1 → NECP outlines single day-ahead and intraday EU electricity market completion as required by Commission Regulation (EU) 2015/1222 establishing a guideline on capacity allocation and congestion management (CACM Regulation) by: →

Implement Market Coupling Operator Plan (MCO Plan): establishing rules for management and cooperation between nominated electricity market operators (NEMOs)

→

Long-term electricity market: offering all products of long-term transmission rights relevant to bidding zone border of Czechia through the Single allocation platform for 2019

→

Day-ahead electricity market: connecting the CZ electricity market* with the Western European Connected Market by 2021

→

Integrating Czechia into the single intraday coupling (SIDC) under the EU-wide XBID-project (Cross-border intraday project) and the LIP 15 project** in the EU in accordance with the CACM Regulation

Member Observer

→ The balancing services market harmonization (valuation of regulatory energy from standard products) with the rest of Europe needs to be finished by connecting to all relevant regional platforms (especially PICASSO*** and MARI***, see figure) by the end of 2023 as requested in the Commission’s electricity balancing guideline 2017/2195 *) The Czech republic has day-ahead coupling with the Slovak, Hungarian and Romanian markets („4M MC market“) **) CEPS and OTE together with similar entities in Bulgaria, Austria, Germany, Hungary, Poland, Romania, Slovenia and Croatia, form the LIP 15 project. All parties expressed their interest in implementing continuous cross-border trading and introducing implicity intraday cross-border transmission capacity allocation on the respective borders. ***) aFRR: PICASSO – automatic Frequency Restoration Reserves; mFRR: MARI – manual Frequency Restoration Reserves.

Image source: ENTSO-E, 2018

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Policy context – National Energy and Climate Plans (NECP) NECP – measures to increase energy system flexibility

EU member states are requested to transpose measures with regard to demandside flexibility into national legislation as reflected in Czechia’s NECP 2019

→ NECP outlines transposing the measures with regard to DSF of Directive 2019/944 (revising 2012/27) on common rules for the internal market for electricity gradually into national legislation.1 Those should include2: →

Enable all consumers to benefit from participating in flexibility services, through adjusting their consumption according to market signals and benefiting from lower electricity prices or incentive payments

→

DSF should be encouraged to participate alongside supply within wholesale, balancing and ancillary services markets

→

DSF providers (including aggregators) must be treated in a non-discriminatory manner by TSOs and DSOs

→

National regulatory authorities should define technical modalities (payment, criteria, duration of the call, definition of baselines, size of the bid) for the participation in these markets

→ Further flexibility measures outlined in National Action Plan Smart Grids 2015 and 2019 (see separate slide providing more detail)

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Policy context – National Energy and Climate Plans (NECP) NECP – projections of infrastructure expansion requirements in the electricity sector1 → Decentralised production in the transmission system:

Czechia is implementing measures that allow for increased network efficiency and facilitate the integration of decentralized energy sources

→

→

→

Lead to an increase of the generated reactive power in the distribution system and in voltage at the transmission system transfer station Duplication of transmission will increase transmission capacities but will also increase reactive power generated by transmission system lines In order to maintain voltage within limits, reactive power compensation tools and 1000 MVAr of compensation facilities are required. In addition, new technologies are introduced in Czechia’s transmission system to increase transmission capacity of the lines as well as increasing reliability and efficiency of the grid.

→ Decentralised production in the distribution system: →

81 110kV substations planned to cope with expected load (see table)

→

Networks will be gradually equipped with bidirectional communication devices between DSO and consumers

→

Autonomous devices will be used to evaluate state of network

110 kV substations Distribution transformer station 110 kV/HV

Traction transformer station

Power output from WPP and PVPP Total number of 110 kV stations

ČEZ Distribuce

E.ON Distribuce

PRE Distribuce

Total

44

20

10

74

0

3

1

4

3

0

0

3

47

23

11

81

Planned 110kV substations from NECP 20191

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Policy context – National Action Plans Smart Grids Policy context – Role in NECP/RRP The 2015 NAP SG proposes multiple investment needs and cost estimates on spending needed through 2024 and 2029.

NAP SG 20151

→ Investment areas needed to upgrade to the smart grid: → Connect decentralized production

→ Network control & automation → Connecting electromobility → Smart metering systems

Total investment needs are €1.4 bn (CZK 34.8 bn) by 2024, €2.1 bn (CZK 52.1 bn) by 2029, and an additional €2.4 bn (CZK 59.5 bn) by 2040. NAP SG 2019 proposes an additional €1.8 bn (CZK 45 bn) for the period after 2040.1

NAP SG 20191

→ Improvement areas needed to upgrade to the smart grid: → EU legislation governing network regulations & new technologies → Use of flexibility and aggregation for electricity systems (decentralized energy sources, consumption) → Electromobility integration → Digitization (automation, communication)

→ Dispatching control → Accumulation (integration and use for the operation of the electricity system) → Advanced Metering Management 16

What is demand-side flexibility? → DSF is a short-term and plannable change in consumer load

Overview of an aggregator

→ It is used at peak power demands and one of its main functions is to actively reduce demand → DSF is accumulated by aggregators (see figure) marketing the loads in the electricity market

→ DSF facilitates the integration of renewable energy sources and reduces electricity costs Images source: IRENA, 2019

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Grids – why demand-side flexibility?

Global Energy Trends Pressures and enablers

DECARBONISATION

DISTRIBUTED

RENEWABLE ENERGY, ENERGY EFFICIENCY, E-MOBILITY, DEMAND SIDE MANAGEMENT

GENERATION, ENERGY STORAGE, MICROGRIDS, PROSUMERS, FLEXIBILITY & AGGREGATION

• European Green Deal strengthened climate targets and CO2 emission reduction target from 40% to 50-55% by 2030 • EU binding targets for 32% renewables (+ new planned 40% RES share update1) and 32.5% increase of energy efficiency by 2030

• Increase of RES production • Strenghtening the role of active customers with their selfproduction & ability to provide flexibility • A new role of aggregator (flexibility and decentralized production) • Use of BESS (Battery Energy Storage) for network balancing

DIGITALISATION

SMART GRIDS, DEMAND SIDE RESPONSE, ACTIVE NETWORK MANAGEMENT

• Smart meter roll-out – EU aims for large roll-out by 2030 • Aggregators present opportunities for demand side response and flexibility utilization

Source: adapted from EY & Unicorn University, 2021

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From a traditional power system…

Why demandside flexibility? …to an intelligent power system with demand-side flexibility at the core

Images source: IRENA, 2019

Grids – why demand-side flexibility in Czechia The 2020 EU Market Monitor Map for Demand Side Flexibility – Many dynamic and rapid evolving markets across Europe for DSF1 Scope of Market Monitor: → Accessibility and availability of DSF to value streams

Czechia with low DSF activity

→ Monetisation of DSF in value streams → Number of stakeholders active in DSF

Image source: Smart Energy Europe & Delta EE, 2020

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Grids – why demand-side flexibility in Czechia Demand-side flexibility enablers

To cope with the decentralized energy future, existing government action plans, EU directives and best practices from other countries enable a successful DSF implementation in Czechia

→ NAP SG (2015)1: Large investments in smart metering systems planned: €1 bn (24,650 CZK billion) in 2020-2029; Czechia with late smart meter full potential unleash due to delayed partial (only >6 MWh) roll-out (starting 2024)4 → Update to the NAP SG (2019)2: Defines relevant areas to be developed especially in use of aggregation and flexibility, integration of electromobility, digitization, dispatching control, accumulation, intelligent measurement, legislation, etc. → all measures necessary for DSF enablement → Legal grounds: 2019/944/EC Directive3 enables and requires flexibility to enter the Czech market → The expected increasing electrification (new heat pumps, heat storages, CHP) of the district heating system, industrial heating and grid connection of new RES sources will significantly increase the pressure on the Czech grid system → Best practices – UK experience: between 30-50% of balancing services was provided in 2019 after aggregators were allowed to offer DSF services in 20184

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Grids – why demand-side flexibility in Czechia?

Best Practice Example – usable flexibility potential of new technologies in 2023 and 2035 in Germany’s grid (in GW) Electromobility

Small storage

Flexibility

Electric heat applications

Flexibility

uncontrolled*

Flexibility Flexibility

Flexibility

uncontrolled*

Flexibility

uncontrolled*

Source: adapted from E-bridge, 2019

*) The case in which neither positive nor negative flexibility is used is the "uncontrolled case”1

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Grids – why demand-side flexibility in Czechia?

Czechia’s DSF potential has been estimated at 5 GW2 (+ 1.5 GW storage flagship proposal) potential. The actual total unleashing DSF potential of Czechia needs to be assessed and can be significantly higher than the current estimation

Demand-side flexibility positive potential load estimation in Czechia by 2030 (in MW) 2,347 MW 2,012 MW 1,500 MW

478 MW 177 MW Industry - very high voltage

Industry high voltage

Retail - heating + hot water

22 MW

57 MW

Retail - other Electromobility Accumulation

Additional Storage

Data Source (excl. grey bar): Czech Ministry of Industry and Trade, 2020

→ →

The demand-side flexibility estimation is under a scenario of fast replacement and installation of appliances and high motivation by consumers to use flexibility The DSF estimation is thus just an estimate of reasonable scenario of implementation: the actual potential can be significantly higher than 5 GW for Czechia 23

Investment barriers Demand-side flexibility policy barriers →

Currently, only generation-side energy flexibility services are allowed in Czechia1,2 →

Regulatory structures in Czechia are not adjusted, a clear implementation plan and a baseline definition is needed to unlock DSF potential

→

→

Regulatory structures in Czechia are not adjusted to enable DSF in the market or defined the role of independent aggregators & DSF providers1,2 →

This was demanded in the 2012 EU Energy Efficiency & 2019 Internal Market for Electricity Directive

→

No Czech regulations exist for demand-side load participation via wholesale services (day-ahead or intraday) or load shedding – together with balancing services could create a wider range of options of DSF for Czech energy actors

The NECP (2019) and NAP SG (2015 & 2019) introduce measures to increase CZ grid system flexibility but no clear implementation timeline2 →

→

Unlike in many other European countries, such as Germany and the UK, where demand-side participation is possible3

Aggregators need to reflect the respective policy framework and if not given are hesitant to invest significant upfront investment costs.

No DSF services baseline definition (being discussed within Dflex project)2 →

Definition of baseline crucial information for aggregators active in DSF (e.g. how to estimate the baseline for household DSF services)

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Implementation: Reform instruments Reform 1: Establish a demand-side flexibility market design →

Establish legal framework for demandside flexibility services and elaborate a demand-side flexibility implementation timeline in the NECP 2021.

→

Establish a DSF market design as demanded in 2019/944/EC1 Directive by setting up legal framework for demand-side flexibility services: →

Create a regulatory framework for balancing services (primary, secondary and tertiary reserves) which allows Czech energy actors to participate via DSF actions in the new harmonized EU BSM markets to enable more flexibility in the distribution grid for the DSOs

→

Create a regulatory framework for load participation via wholesale services (day-ahead and intraday) facilitating the grid operation for both DSOs and TSOs and creating a broader set of DSF participation for the independent aggregators and DSF service providers

→

Facilitate the market entry of aggregators by allowing also smaller loads and full aggregation of consumer load (esp. residential and commercial) to participate in demand-side flexibility services

→

Define the aggregator as fully independent (able to provide flexibility services without the liability for imbalances with need for also supplying the electricity to the consumer)

Elaborate a demand-side flexibility implementation timeline in the upcoming NECP (2021) to de-risk upfront private investments and guarantee planning security

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Investment barriers Demand-side flexibility industry sector barriers: →

Lack of financial incentives, few value streams and Demandside flexibility unawareness obstruct larger industrial participation

→

The financial incentive for the industry to participate must be higher than the opportunity costs of the loss of production1 →

Currently, the electricity price signal is often not sufficient to create a successful business case for DSF services. This holds true for the iron, cement, steel and food industry. 1

→

Marketing opportunities such as bringing money through DSF and setting them up for the future electricity market are therefore limited to certain industries (especially chemical, paper, aluminum, cooling industry)1

Path-dependent generation-based energy market education1 →

Current energy actors’ mindset is that flexibility services could mainly be provided by the generation side such as gas-fired power plants1

→

Currently, Czechia is considered as market with low DSF activity. This means there is few value streams for DSF established, available and/or accessible for the industry.2

→

In general, as shown by pilot studies from the German states of Bavaria3 and Baden Württemberg4 , DSF participation is unknown among energy actors, especially the industry. Since CZ industry could not participate so far in DSF services, they are likely to be mostly unaware.

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Implementation: Reform instruments Reform 2: Create a level playing field for market participation of the industry sector to unleash 2.5 GW flexibility potential by 2025

Create a level playing field for market participation of the industry sector to unleash 2.5 GW flexibility potential by 2025

→ Support similar market entry requirements and decrease of market entry barriers) for market participation in DSF services: →

Conduct awareness raising campaigns on new DSF opportunities in the respective markets (ancillary, wholesale, balancing) for Czech energy actors. Promulgate best practices.

→

Carry out DSF business case analysis and support the prequalification process of those large Czech energy actors (>1MW) where an analysis conducted by an aggregator comes with significant risk due to uncertainty of the CZ energy actor's individual market potential (iron, cement, steel and food industry)

→ Enable aggregators to market DSF services to the industry →

Define the aggregator as fully independent (able to provide flexibility services without the liability for imbalances with need for also supplying the electricity to the consumer), to allow a fast DSF industry deployment and growth of the CZ aggregator market

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Investment barriers Demand-side flexibility barriers in energy storage:

→ Current state of legislation and supporting tools for energy storage1: → The existing Energy Act does not include necessary improvements to promote the development of battery storage systems. Since 2017, private companies are unsuccessfully pushing for actions

Energy Storage Systems can stabilize the grid with increasing fluctuations coming from renewable energy Sources

→ Since November 2019, a leading company, AKU-BAT CZ Association for Energy Storage is working on a new energy act, which would include energy storage, flexibility aggregators and other innovative energy market sectors

→ Absence of legislation for mix usage of battery storage and RES1 → Insufficient grid flexibility and absence of DSF energy market which would allow trading with storage capacity (load-shifting and peakshaving)

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Implementation: Reform instruments Reform 3: Profit from demand-side flexibility and storage

→ Legislation improvements

Legislation improvement and 1.5 GW battery storage projects could support energy storage sector to unfold in Czechia and allow for additional available grid flexibility

→ Accelerate the implementation of a new law specified on large energy storage, allowing the connection of existing storage plants to the grid → Define the role and application of battery storage systems in DSF services in existing energy law

→ Improve legislation for mix usage of battery storage and RES

→ Implement 1.5 GW battery storage projects by 2027 that are colocated with renewable energy plants1 → Introduce financial incentives (e.g. tax exemptions or rebates) to increase support for further storage innovation → Support existing plans for additional energy storage facilities

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Investment barriers Demand-side flexibility residential electricity retail sector barriers →

Czech Republic's current metering points are not compatible with the smart grid and the country is aiming for a delayed roll-out of smart meters

Czechia has an outdated “ripple control system” (acting as DSF mechanism) since the 1960s. Dual tariffs motivate energy savings in households as fixed fees are low compared to the consumption-related costs.1 →

→

→

This system is not compatible with flexible smart grids. However, the system is used by 40% of customers and is hard to transition.1

Due to a two-times negative cost-benefit analysis (CBA), the CZ did not start yet with their smart meter rollout.2

→

The CBA excluded the direct consumption impact from a smart meter roll-out, skewing the results negatively.2,3

→

For example, Italy calculated a positive cost-benefit analysis when taking into account the consumption impact and CO2-related emissions reductions.2

The CZ government has delayed the smart meter rollout until 2024 and planned for 3 years for customers with annual consumption over 6 MWh.4

→

Considering an average annual consumption per dwelling of 3.5 MWh in Czechia5, this is only a selective rollout. The majority of the households will not be equipped with a smart meter.

→

By 2030, a 92% smart meter penetration rate is expected in the EU. 2 With the current plan, Czech households will be left behind and unable to participate from economic benefit potential smart meters bring along.

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Implementation: Reform instruments Reform 4: Accelerate the smart meter rollout to enable demand-side flexibility in the residental electricity retail sector

Accelerate the smart meter rollout to enable demand-side flexibility in the residential electricity retail sector to unleash 2.5 GW flexibility potential

→ Start smart meter rollout for the residential sector in 2022 to unleash 2.5 GW flexibility potential by 2025 →

Equip all 5.7 million metering points in CZ1 (apart from customers with installed PV with already installed continuous electricity measurement) with latest available smart meter technology

→ Reform the tariff structure to promote innovative flexible consumer electricity products →

Enable and incentivize energy retailers to create flexible electricity tariffs. Make use of best practices from existing European energy retailers.

→ Educate the market about flexible electricity consumption →

While regulation is amended and smart meters are implemented, conduct awareness raising campaigns about the associated benefits (revenues and savings) of flexible electricity consumption

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Grids – Flagship details Transformative character of unleashing Czechia’s flexibility potential: → Load participation, for example, by residential electricity consumers or the industry, via DSF, can support electricity grid operation and facilitate the integration of renewables by mitigation of volatility

Demand-side flexibility can support electricity grid operation and facilitate the integration of renewables

→ Provides a new source of income and energy bill savings to participants (e.g. commercial hotels or industrial electrified district heating actors)

→ Due to the expected coal phase out and decentralized energy future, consumer empowerment via demand-side flexibility enables a more balanced energy system → The TSOs and DSOs benefit: they have to invest in less grid infrastructure in the future through grid flexibility gains

→ With demand-side flexibility significant CO2-emissions can be saved through the additional capacity created by DSF, enabling more renewable energy sources to connect the grid

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Grids – Flagship details Unlocking grid flexibility potential addresses national issues: →

Classic grid line extension comes along with significant barriers in Czechia →

This flagship aims to support Czechia’s future national energy independence by providing a cost- and emissions effective solution to operate Czechia’s future grid network in a decentralized energy system

→ →

→

To unleash Czechia’s full energy flexibility potential, the generation-side is not sufficient → → →

→

Bad reputation of RES integration, the main reason for grid expansion: The historically difficult standpoint of RES in the CZ among the public puts grid expansion on to a difficult starting point. 1 Inadequately long and complicated permitting processes in Czechia and the long technical lifetime of transmission system facilities2 Capacity expansion of generation and distribution network involves high investments. A study from Turkey shows that activating DSF services can lead savings by avoided infrastructure expansion of nearly €500 mn per year.3 Since 2021, generation-side energy flexibility services are allowed in Czechia4 Aggregators participate in this market with small amounts of energy (10MW). Generation-side is developed and prepared for market growth4 DSF bears a significant potential to enable energy saving and CO2 emissions reduction

Czechia needs to implement measures to ensure performance balance such as DSF5 →

→

The statistical expectation that national energy supply will not meet demand for Czechia currently predicts high future values. Czechia needs to implement measures to ensure performance balance such as DSF.5 Current scenarios predict that Czechia will shift from an energy exporter to an importer5

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Grids – Flagship details Emission reduction potential overview (I/III) Use & accommodate more RES with enhanced grid flexibility: →

Unleashing Czechia’s DSF capacity facilitates the use and accommodation of more RES instead of conventional power sources with a significant emission reduction potential

Evidence from other countries suggest a significant CO2 emission reduction potential through DSF in the grid network: →

DSF helps to use RES instead of regulate RES: According to a study from E-Bridge (2019) for the German grid, the additional usable energy from renewables amounts to 4.7 TWh through the flexible use of loads and storage facilities in the grid by 2035. This results in 1.5 Mt CO 2 emissions saved per year in the flexible grid scenario.1

→

DSF has the potential to accommodate more RES: A study from Turkey showed that DSF, especially by a combination of flexible heating and smart EV charging, could reduce peak demands in Turkey by up to 14% (10 GW of peak 73 GW summer day scenario), to help accommodate 30% of wind and solar output by 2030.2

→

Czechia’s DSF potential was estimated at 5 GW3 (+ 1.5 GW storage flagship proposal) capacity

→

To estimate the full emission reduction potential of this and potentially higher DSF capacity (current scenarios calculate an estimate, based on legislation, infrastructure and consumer behavior), holistic modelling of the grid system’s flexibility is required3

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Grids – Flagship details Emission reduction potential (II/III) – Example from German study Additional usable energy from renewables and the associated reduction in CO2 emissions through the flexible use of loads and storage facilities in the German distribution grid

Regulated renewable energy without grid-serving flex use of loads and storage by DSO 2035

Regulated renewable energy with grid-serving flex use of loads and storage through DSO 2035

Use instead of regulate

Reduction CO2 Emissions 2035

(Assumption of a specific electricity mix in 2035 of ~ 320 g CO2/kWh)

Source: adapted from E-bridge, 2019

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Grids – Flagship details Emission reduction potential (III/III) – Example from Turkey study → Demand-side flexibility services with potential to make electrification “smart”, by avoiding investments in: →

The power system (from generation to distribution)

→

Improve efficiency of electricity generation

→

Improve capability of the system to accommodate high levels of variable RES penetration

→ Combination of flexible heating and smart EV charging could reduce peak demands in Turkey by up to 14% (10 GW of peak 73 GW summer day scenario), to help accommodate 30% of wind and solar output by 2030 (see graph) Source: Element Energy, SHURA Energy, Agora Energiewende, 2021

36

Grids – Flagship details Investment needs →

2015 – expected flexible (smart) grid costs (derived from table): →

→

Estimated €6 bn (CZK 150 bn) until 2030 consisting of decentralized production connection, new smart grid network properties, connecting electromobility and smart metering systems. An additional estimated €4 bn (CZK 100 bn) needed after 2030, especially to connect decentralized production to the smart grid.

2021 – flexible (smart) grid cost increase expected: →

→

→

Especially due to the recent European Climate Law adoption (2021) and the current revised Renewable Energy Directive II plannings to strengthen the EU RES targets from 32% to 40% share of RES in final energy consumption by 2030.2 Czechia currently targets a 22.09% (from 22.00% in the NECP 20193) share of RES in final energy consumption by 2030 in its RRP 2021.4 It is also not clear whether €1 bn (CZK 25 bn) will be sufficient for a large-scale smart meter rollout. According to recent numbers, €2 bn (CZK 50 bn) in total are required to equip all 5.7 mln CZ meter points with latest smart meter technology amounting to €6 bn (CZK 150 bn) total estimated flexible smart grid development costs until 2030. 5 In light of the above-mentioned developments, in particular due to the adjusted EU 2030 RES target, an increase in connecting decentralized production costs is expected.

Therefore, the estimated €6 bn (CZK 150 bn) total flexible smart grid development investment needs unleashing Czechia’s system flexibility potential of the grid network are a conservative estimation.

Flexible (smart) grid development - Investment area

After Until 2030 (in 2030 (in EUR/CZK EUR/CZK billion) billion)

Connecting decentralized production

2/50

4/100

Ensuring necessary network properties, protection, control, & automation technology

0.4/10

0.1/2.5

Connecting electromobility

0.1/2.5

0.1/2.5

Smart metering systems

2*/50

Storage

1**/25

Total rounded (estimated) investment needs

6/150

4/100

Source: Czech Government, 2015 & 2019 *) Based on National Action Plan for Smart Grids NAP SG 2015 & 2019 update. Number of mart meter costs estimated at € 2 bn instead of € 1 bn due to more recent numbers from 2018 from EU28 Smart Metering Benchmark Revised Final Report , DG Energy European Commission, 2019. **) Based on Aku-Bat CZ Association for Energy Storage, 20216. Calculation for 1,5 GW storage systems.

37

Implementation: Financing instruments Financing options (I/VI) – Overview Financing grids → Transmission system operator ČEPS 100% owned by the Czech state (100% shareholder) and distribution system operators ČEZ Distribuce (70% state owned), E.ON Distribuce (private), PRE Distribuce (private) → The increasing investments necessary to integrate RES are mainly financed through debt (e.g. German TSOs Green Bonds, ČEPS loan from EIB)1,2 → Grid operators generate revenue via network fees passed on to the end consumers. Investments are compensated through fees

Financing sources for grid operators → Private financing options (see in more detail next slides): → Issuing Bonds: Green Bonds (see German grid operators)1 → Via Bank loans (see EIB loan of ČEPS)2 → Suitable investment programmes (see in more detail next slides): Modernization Fund, Connecting Europe Facility (CEF), European Regional Development Fund (ERDF), Horizon Europe, InvestEU Fund

38

Implementation: Financing instruments Financing options (II/VI) – Barriers Financing grids

issues1

Comparable TSO-specific Unit Transmission Tariffs 2018 at the voltage level of 220-150 kV in EUR/MWh (constant Euros of 2017)*

→ The grid operators cash flow generated from the network fees passed on to the end consumers will not be sufficient to finance the energy transition → Financing the grid energy transition will require heavy external financing → The external financing will be naturally followed by increased network fees for the end consumers

→ Czechia has one of the highest unit transmission tariffs (~12€/MWh) compared to other European countries (see graph top right)

Source: Scope Ratings, 2019

Free operating cash flows of German TSOs (2013 – 2018)

→ For example, in Germany, the significant CAPEX over the past years has led to negative operating cash flows of the 4 TSOs (see graph bottom right) → Financing grids faces the question of how to make the energy transition socially just *) excluding non-TSO costs (renewable energy support, regulatory levies, stranded costs, etc)

Source: Scope Ratings, 2019

39

Implementation: Financing instruments Financing options (III/VI) – Flagship finance options Private financing options for grid operators → Green bonds →

Popular finance instrument used by European energy providers and grid operators to finance the energy transition that is earmarked to raise money for climate and environmental projects.

→

The energy transition is considered as “boon” for green bonds (mainly debt financed) and the recent newcomer green hybrid bonds (partly covered with equity of the emitter)1,2

→

For example, Tennet (TSO in Netherlands and Germany) is one of the largest corporate issuers of green debt in Europe, with over €10 billion issued.3 Further, German EnBW (parent of German TSO) issued in 2019 already its second green hybrid bond which were oversubscribed within a very short time.2

→

First green bonds issued in Czechia by Raiffeisen Bank (RBI Group) amounting to €35 mln in June 2021, €500 mln by Česká spořitelna (Erste Group) in September 2021 and gas distribution system operator (GasNet, Czech Grid Holding respectively) announcing €500 million in September 2021

→

Flagship financing option: Czechia’s TSO ČEPS raises green bonds derisked by publicly available funds (see next slide) or development banks (e.g.

German KfW or EIB) to attract additional private capital

→ Bank loans →

EIB recently issued €190 mln (CZK 5 bn) loan (2020) for ČEPS to modernize and reinforce the electric grid4

→

EIB provided several loans for smart meter financing (essential for demand-side flexibility) in other European countries (Italy €1bn in 2017-21, Belgium €200 mln in 2021)5,6

→

Flagship financing option: consider using existing €190 mln EIB loan for demand-side flexibility measures and raise additional loans from EIB following Italy’s and Belgium’s example for smart meter rollout 40

Implementation: Financing instruments Financing options (IV/VI) – Flagship finance options Overview of suitable investment programmes options for grid finance → Potential sources of grid relevant financing options at Czech level (budget for Czechia 2021 - 27)*: →

Modernization Fund: €5 bn (depending on the carbon price)1

→

Connecting Europe Facility (CEF): €2 bn1

→

European Regional Development Fund (ERDF): €10.3 bn for Czechia1

→ Available sources of grid relevant financing options at EU level (total EU budget 2021 - 27): →

Horizon Europe: €95.5 bn2

→

InvestEU Fund: €372 bn of public and private investment through an EU budget guarantee of €26.2 bn (main implementation partner EIB)3

→

LIFE Programme for environment and climate action €562 mln4

→

Potential RRP funds amendment (currently no funds committed to grids)

→ Available EU Subsidy Programs to finance energy storage in Czechia5 →

Innovation Fund: €10 bn (budget for all EU countries, depending on the carbon price)

→

Just Transition Fund: €2.5 bn

→

Modernization Fund: €5 bn (depending on the carbon price)

*) EU funding numericals are estimates.

41

Implementation: Financing instruments Financing options (V/VI) – Flagship finance options Deep dive suitable investment programmes for grid finance Connecting Europe Facility (CEF)

→ €2 bn estimated for Czechia1* → CEF supports development of interconnected transEuropean networks in the fields of transport, energy and digital services2

→ Sub programme CEF Energy including flexible/smart grids funding windows2 → Currently ACON Smart Grids (integration of CZ and Slovak electricity market via smart grid enhancing solutions) as ongoing project in Czechia funded by CEF Energy with max.

EU contribution € 91 mln3

*) EU funding numericals are estimates.

Source: European Commission, 2021

42

Implementation: Financing instruments Financing options (VI/VI) – Flagship finance options Deep dive suitable investment programmes for grid finance – LIFE Programme → €562 mln at EU level1* → LIFE Programme as EU funding instrument for environmental and climate action2 → For grid finance LIFE Clean Energy Transition sub-programme most relevant2

→ Current projects calls are, i.e., A) “Towards effective implementation of key legislation in the field of sustainable energy” or B) “Establish innovative business models and contractual schemes for smart and sector-integrating energy services”3 → →

A) Potential match with flagship reform 1 proposal on establishing a DSF market design by setting up a legal framework for DSF

Source: European Commission, 2021

B) Potential match across flagship reforms 2 and 4, focusing on promotion innovative flexible consumer electricity products that enable DSF

*) EU funding numericals are estimates.

43

Conclusions and final remarks → Significant transformation is needed in the grid sector to operate Czechia’s future grid network. However, the country currently has a limited capacity of new renewable energy sources that can connect to the grid per year. → The since 2021 allowed generation-side energy flexibility services in Czechia are not enough to unleash Czechia’s full energy flexibility potential → Generation-side and demand-side flexibility must develop hand-in-hand. Czech aggregators marketing generation-side flexibility are ready to market demand-side flexibility to customers and there are many successful European best practices. But with the status quo and outlook of Czech demand-side flexibility activities, Czech industrial and residential consumers are falling behind in a European perspective. → This flagship, therefore, aims to enable electricity consumers and Czechia’s grid operators to benefit from demand-side flexibility with four major reforms/measures: → (1) Establish a demand-side flexibility market design; (2) Create a level playing field for market participation of the industry sector to unleash 2.5 GW flexibility potential by 2025; (3) Profit from demand-side flexibility and storage; (4) Accelerate the smart meter rollout to enable demand-side flexibility in the residental electricity retail sector to unleash 2.5 GW flexibility potential

44

45

Grids – Demand-side flexibility success stories Best practices France – Demand-side flexibility activity1 → France has relatively high demand response participation (~5 GW) → The market is dominated by large commercial and industrial loads that participate in ancillary services and capacity market → Residential loads account for ~1 GW of flexibility where electric heating is the key asset → Flexibility can be offered in balancing and capacity services. Since 2018, there is an annual tender to procure demand

response. → In addition, since 2014, flexibility can be aggregated and traded in the wholesale market through a mechanism called NEBEF.

There are 23 active aggregators in this mechanism. → There is a transfer of energy (ToE) mechanism in place, so independent aggregators compensate the supplier for the energy sourced. → Price volatility is relatively low in France. However, the electricity demand doubles from summer to winter months. → High demand during the winter months causes adequacy problems and a need of an increase in competition in the various markets have driven the participation of DSR in France. This has been enabled by targeted policies and regulations.

→ Network tariffs are mostly volumetric. There are various supply tariffs available for industrial, commercial, and residential

customers, allowing for implicit DSR. In 2018, it was estimated that the capacity made available by these tariffs was around 700 MW. 46

Grids – Demand-side flexibility success stories Best practices Great Britain – Demand-side flexibility activity1 → Great Britain has high demand side flexibility activity especially in the adequacy services and balancing markets (2.3 GW for

FCR in 2018 and ~10 GW across 3 tenders for STOR in 2018). → DSF does not participate in wholesale markets yet and only independent aggregators can enter the balancing mechanism

(BM). In the future, additional DSF is expected in DSO constraint management and wider access for DSF on the market (NG ESO initiative and DNO/DSO transition). → The price volatility in wholesale market is high but not sufficient for DSR providers. → Grid tariffs rely on volume and not capacity. Avoidance of network charges (e.g. Triad and DSoUs) incentivize consumers to

shift their demand away from high peaks. Time-of-use energy tariffs are in use for C&I customers, and at early stages of use for residential customers. → The market design is contestable, unbundled, and encourages high DSF activity. Despite being a mature market (especially at

Transmission level), there are still barriers and market uncertainties which hinder wider DS participation. → Key enablers for DSF participation in GB are regulation and support from Ofgem and BEIS as well as market signals. The policy

has led network companies to create emerging opportunities for DSF such as the wider access to the BM, weekly low frequency response auctions (in 2018-19) and participation of DSF in DSO constraint management. Innovation is also supporting this direction toward DSF. 47

Grids – Flagship details Best practices Turkey – Demand-side flexibility cost for different demand sectors1 → The table shows the LCOR (minimum cost of providing one unit of flexible energy to the system) of DSF application in different sectors in Turkey

Total cost, utilisation and levelized cost of response (LCOR) for different demand sectors

→ To be economically viable, the cost of activating DSF must be offset by system savings that arise from increased flexibility and reduced peak demand

→ Operational costs are small compared to capital costs of DSF options that are connected to distribution grids, like commercial and residential heating and EV charging → Capital investment of enabling DSF becomes affordable when spread across many hours of utilization → In Turkey, activating DSF can lead to efficiency savings of up to €122 mln per year through reduced generator fuel use and redispatch requirements as well as savings avoided capacity expansion of generation and distribution networks savings of nearly €500 mln per year

Source: Element Energy, SHURA Energy & Agora Energiewende, 2021

48

Background info: Electric Grid in Czechia Key players in the CZ electricity market → ČEZ biggest electricity generator1 → ČEPS (Transmission System Operator – TSO) is the sole owner and operator of the transmission grid, which is fully owned by the Czech state (Ministry of Industry and Trade charged with exercising shareholder rights). The Company is responsible for the maintenance and upgrading of 44 substations comprising 79 transformers, which allow electricity to be supplied from the transmission system to the distribution network, as well as 400kV lines with a

total length of 3,867 km and 220kV lines with a total length of 1,824 km.2

→ The distribution system is predominantly owned and operated by three Distribution System Operators (DSOs): → ČEZ Distribuce (North and Central Bohemia) -> biggest DSO → E.ON Distribuce (South Bohemia and South Moravia) -> 2nd largest DSO → PRE Distribuce (City of Prague) -> only Prague, smallest DSO

→ Unbundling of the management, accounting and legal functions of the DSOs has been implemented. A large number of operators also operate local distribution systems. There are currently approximately 300 licensed distributors in the Czech market 1

→ OTE is the CZ electricity market operator which operates the electricity spot and day-ahead market together with the Power Exchange Central Europe (PXE). Together with CEPS, OTE performs an accounting function in respect of the energy balancing market1

→ The main legislative player is the Energy Regulatory Office (ERO). Its main tasks include the following: price regulation; stipulate support for RES by price decisions; promote competition in the energy sector; licenses and supervises energy producers, traders and other actors; and consumer

protection3 49

Status quo of energy storage in Czechia → NEC 4 MWh storage project in Tušimice, for IBG Cesko (part of the BAART research project conducted

by CEZ and CEPS)1. → 1 MWh storage supplied by Alfen's Mega Energy Storage for Czech Solar company Solar Global.

Extension project in Ochoz with additional 10 MW2 → Eon 1.8MWh large-capacity storage project in Mydlovary (plans for extension to 10MWh)3 Image source: EON, 2018

50

Annex – Footnotes, abbreviation, glossary Unleash system flexibility potential of the grid network

Slide 1 2 3 4 5 6 7 8

9

10 11

Footnotes and sources Sources: 1 Figure source: ČEPS, Ten-Year Transmission System Development Plan of the Czech Republic 2021 –2030, 2020, https://www.ceps.cz/en/transmission-system-development.

2 ENTSO, 2020, Scenario description and storylines, accessible at: https://2020.entsos-tyndp-scenarios.eu/scenario-description-and-storylines/.

Sources: 1 Energynautics, Schierhorn, Hempel, Ackermann, CZECH POWER GRID WITHOUT ELECTRICITY FROM COAL BY 2030: POSSIBILITIES FOR INTEGRATION OF RENEWABLE RESOURCES AND TRANSITION INTO A SYSTEM BASED ON DECENTRALIZED SOURCES, 2018, http://en.frankbold.org/sites/default/files/publikace/czech_grid_without_coal_by_2030_fin_0.pdf.

2 Agora Energiewende and Forum Energii, Modernising the European lignite triangle, 2020, https://www.agoraenergiewende.de/fileadmin/Partnerpublikationen/2020/Lignite_Triangle/EN-Modernising_the_European_lignite_triangle.pdf.

3 European Commission, 2021, Commission presents Renewable Energy Directive Revision, https://ec.europa.eu/info/news/commission-presents-renewable-energy-directiverevision-2021-jul-14_en Sources: 1 Czech Government, Czech National Energy and Climate Plan, 2019 https://ec.europa.eu/energy/sites/ener/files/documents/cs_final_necp_main_en.pdf Sources: Figure Scope Ratings, 2019, Germany’s grid operators face growing multibillion-euro investment challenge: Energy transition a boon for green bonds.

1 E-bridge 2019: Economic advantage of the grid-serving use of flexibility in distribution grids (Wirtschaftlicher Vorteil der netzdienlichen Nutzung von Flexibilität in Verteilnetzen), innogy SE, EWE NETZ GmbH, Stadtwerke München Infrastruktur GmbH, https://www.e-bridge.de/wp-content/uploads/2019/02/20190212_Studie-E-Bridge_Vorteil_netzdienlicherFlexibilit%C3%A4t_final.pdf.

2 Frontier Economics, Contribution of flexibilities in the distribution grid to reduce redispatch costs in Germany (Beitrag von flexibilitäten im Verteilnetz zur Senkung der Redispatchkosten in Deutschland), 2017, https://www.bdew.de/media/documents/20170809_Studie-Redispatchkosten.pdf.

12 13

14

15 16

17

18 19

20

21

22

Sources: 1 Czech Government, Czech National Energy and Climate Plan, 2019 https://ec.europa.eu/energy/sites/ener/files/documents/cs_final_necp_main_en.pdf Sources: Figure ENTSO-E, 2018, Electricity balancing in Europe: an overview of the European balancing market and electricity balancing guideline.

1 Czech Government, Czech National Energy and Climate Plan, 2019, https://ec.europa.eu/energy/sites/ener/files/documents/cs_final_necp_main_en.pdf Sources: 1 Czech Government, Czech National Energy and Climate Plan, 2019 https://ec.europa.eu/energy/sites/ener/files/documents/cs_final_necp_main_en.pdf 2 European Parliament and the Council, 2019, Directive EU 2019/944 on common rules for the electricity and amending Directive 2012/27/EU, accessible at: https://eurlex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:32019L0944&from=EN. Sources: 1 Czech Government, Czech National Energy and Climate Plan, 2019 https://ec.europa.eu/energy/sites/ener/files/documents/cs_final_necp_main_en.pdf Sources: 1 Ministry of Industry and Trade (MPO), National Action Plan for Smart Grids, 2015 & 2019, https://www.mpo.cz/en/energy/electricity/national-action-plan-for-smart-grids-nap-sg-221572/ Sources: Figure and content adapted from EY and Unicorn University, Future role of flexibility in the Czech energy industry, 2021, https://open.unicornuniversity.net/en/european-greendeal-enabled-by-it.

Sources: Irena, Demand-side flexibility for power sector transformation, 2019, https://www.irena.org/publications/2019/Dec/Demand-side-flexibility-for-power-sector-transformation Source: 1 Smart Energy Europe and Delta EE, EU Market Monitor for Demand Side Flexibility 2020, 2020, https://smarten.eu/wp-content/uploads/2021/03/EU_Market_Monitor_2020_132.pdf.

Sources: 1 Czech Ministry of Industry and Trade, National Action Plan for Smart Grids (NAP SG), 2015 2 Czech Ministry of Industry and Trade, Update to the National Action Plan for Smart Grids (NAP SG), 2019 3 European Directorate-General for Energy, Directive (EU) 2019/944 on Internal Market for Electricity (from 2021), 2019 4 EY and Unicorn University, Future role of flexibility in the Czech energy industry, 2021, https://open.unicornuniversity.net/en/european-green-deal-enabled-by-it.

Source: 1 E-bridge, Economic advantage of the grid-serving use of flexibility in distribution grids (Wirtschaftlicher Vorteil der netzdienlichen Nutzung von Flexibilität in Verteilnetzen), innogy SE, EWE NETZ GmbH, Stadtwerke München Infrastruktur GmbH, 2019, accessible at: https://www.e-bridge.de/wp-content/uploads/2019/02/20190212_Studie-EBridge_Vorteil_netzdienlicher-Flexibilit%C3%A4t_final.pdf.

Sources:

Graph Czech Ministry of Industry and Trade, National Action Plan for Smart Grids (NAP SG), 2015 - Measure A12, Use of DECE, consumption including electromobility for the management of the CZ electricity system in the SG environment,2020, Flexibilita.pdf (mpo.cz).

2 Sum of the positive flexibility potential from the graph (excl. 1.5 GW storage flagship proposal) 23

24 25

26 27

28 29

Sources: 1 European Commission Joint Research Centre, Why Demand Response is not implemented in the EU? Status of Demand Response and recommendations to allow Demand Response to be fully integrated in Energy Markets, 2016, https://publications.jrc.ec.europa.eu/repository/handle/JRC106630 2 Anonymous energy aggregator 3 ENTSO-E., Survey on ancillary services procurement, balancing market design 2017, 2018, https://eepublicdownloads.entsoe.eu/cleandocuments/Publications/Market%20Committee%20publications/ENTSO-E_AS_survey_2017.pdf Sources: 1 European Directorate-General for Energy, Directive (EU) 2019/944 on Internal Market for Electricity (from 2021), 2019 Sources: 1 Based on interview with German aggregator.

2 Smart Energy Europe and Delta EE, EU Market Monitor for Demand Side Flexibility 2020, 2020, https://smarten.eu/wp-content/uploads/2021/03/EU_Market_Monitor_2020_132.pdf.

3 DENA, Roadmap Demand Side Management Bayern, 2016, https://www.dena.de/newsroom/publikationsdetailansicht/pub/studie-roadmap-demand-side-management/.

4 DENA, Demand Side Management Baden Württemberg, 2015 https://www.dena.de/newsroom/publikationsdetailansicht/pub/demand-side-management-schritt-fuer-schritt/.

Sources: 1 European Commission, Study on energy storage – Contribution to the security of the electricity supply in Europe, 2020 https://www.akubat-asociace.cz/wpcontent/uploads/2020/05/Study-on-Energy-Storage-1.pdf 1 Aku-Bat CZ Association for Energy Storage, 2021, Batteries as a source for flexibility for 2030, https://open.unicornuniversity.net/en/european-green-deal-enabled-by-it Sources: 1 Demand Response status in EU Member States, JRC Science for Policy Report, 2016 2 European Commission DG Energy, EU28 Smart Metering Benchmark Revised Final Report, 2019 https://op.europa.eu/en/publication-detail/-/publication/b397ef73-698f-11eab735-01aa75ed71a1/language-en.

3 ICCS-NTUA Athens, AF Mercados EMI, Study on cost benefit analysis of Smart Metering Systems in EU Member States, https://ec.europa.eu/energy/content/study-cost-benefitanalysis-smart-metering-systems-eu-member-states_en.

4 Czech Ministry of Industry and Trade (MPO), 2020, Nová vyhláška o měření elektřiny č. 359/2020 Sb., Věcný záměr NOVÝ ENERGETICKÝ ZÁKON (NEZ) (mpo.cz).

5 Odyssee-Mure, 2018, Electricity Consumption per Dwelling, https://www.odyssee-mure.eu/publications/efficiency-by-sector/households/electricity-consumption-dwelling.html

30

31 32

33

34

35

36

Sources: 1 European Commission DG Energy, EU28 Smart Metering Benchmark Revised Final Report, 2019 https://op.europa.eu/en/publication-detail/-/publication/b397ef73-698f-11eab735-01aa75ed71a1/language-en Sources 1 Energynautics, Schierhorn, Hempel, Ackermann, CZECH POWER GRID WITHOUT ELECTRICITY FROM COAL BY 2030: POSSIBILITIES FOR INTEGRATION OF RENEWABLE RESOURCES AND TRANSITION INTO A SYSTEM BASED ON DECENTRALIZED SOURCES, 2018, http://en.frankbold.org/sites/default/files/publikace/czech_grid_without_coal_by_2030_fin_0.pdf.

2 ČEPS, Ten-Year Transmission System Development Plan of the Czech Republic 2021 –2030, 2020, https://www.ceps.cz/en/transmission-system-development.

3 Element Energy, SHURA Energy, Agora, Sector Coupling for Grid Integration, 2021.

4 Own interview source.

5 Czech Government, Czech National Energy and Climate Plan, 2019 Sources: 1 E-bridge 2019: Economic advantage of the grid-serving use of flexibility in distribution grids (Wirtschaftlicher Vorteil der netzdienlichen Nutzung von Flexibilität in Verteilnetzen), innogy SE, EWE NETZ GmbH, Stadtwerke München Infrastruktur GmbH, accessible at: https://www.e-bridge.de/wp-content/uploads/2019/02/20190212_Studie-EBridge_Vorteil_netzdienlicher-Flexibilit%C3%A4t_final.pdf.

2 Element Energy, SHURA Energy, Agora, Sector Coupling for Grid Integration, 2021.

3 Czech Ministry of Industry and Trade, National Action Plan for Smart Grids (NAP SG), 2015 - Measure A12, Use of DECE, consumption including electromobility for the management of the CZ electricity system in the SG environment,2020, Flexibilita.pdf (mpo.cz).

Sources: E-bridge, Economic advantage of the grid-serving use of flexibility in distribution grids (Wirtschaftlicher Vorteil der netzdienlichen Nutzung von Flexibilität in Verteilnetzen), innogy SE, EWE NETZ GmbH, Stadtwerke München Infrastruktur GmbH, 2019, accessible at: https://www.e-bridge.de/wp-content/uploads/2019/02/20190212_Studie-EBridge_Vorteil_netzdienlicher-Flexibilit%C3%A4t_final.pdf.

Source: Element Energy, SHURA Energy, Agora, 2021, Sector Coupling for Grid Integration of wind and solar, https://static.agoraenergiewende.de/fileadmin/Partnerpublikationen/2021/SHURA_Sector_Coupling/sector_coupling_for_grid_integration_of_wind_and_solar.pdf Sources: 1 Table: Ministry of Industry and Trade (MPO), National Action Plan for Smart Grids, 2015 & 2019, https://www.mpo.cz/en/energy/electricity/national-action-plan-for-smart-gridsnap-sg--221572/.

2 European Parliament Think Tank, 2021, Revision of the Renewable Energy Directive: Fit for 55 package, https://www.europarl.europa.eu/thinktank/en/document.html?reference=EPRS_BRI(2021)698781.

3 Czech Government, Czech National Energy and Climate Plan, 2019 4 Czech Government, Recovery and Resilience Plan, 2021

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5 European Commission DG Energy, EU28 Smart Metering Benchmark Revised Final Report, 2019 https://op.europa.eu/en/publication-detail/-/publication/b397ef73-698f-11eab735-01aa75ed71a1/language-en.

6 Aku-Bat CZ Association for Energy Storage, 2021, Batteries as a source for flexibility for 2030, https://open.unicornuniversity.net/en/european-green-deal-enabled-by-it.

Sources: 1 Scope Ratings, Germany’s grid operators face growing multibillion-euro investment challenge: Energy transition a boon for green bonds, 2019.

2 EIB, Czech Republic: EIB signs a CZK 5 billion loan with ČEP to modernise and reinforce the electricity transmission network, 2020, https://www.eib.org/en/press/all/2020-325-eibsigns-a-czk-5-billion-loan-with-ceps-to-modernise-and-reinforce-the-electricity-transmission-network-in-the-czech-republic.

Sources: 1 & Graphs Scope Ratings, Germany’s grid operators face growing multibillion-euro investment challenge: Energy transition a boon for green bonds, 2019, https://www.scoperatings.com/ScopeRatingsApi/api/downloadstudy?id=79fb4e35-2a1c-4e07-95d4-f3ae8d0ca6fe Sources: 1 Scope Ratings, Germany’s grid operators face growing multibillion-euro investment challenge: Energy transition a boon for green bonds, 2019, https://www.scoperatings.com/ScopeRatingsApi/api/downloadstudy?id=79fb4e35-2a1c-4e07-95d4-f3ae8d0ca6fe 2 Finance-Magazin, 2019, EnBW platziert grünen Hybrid, https://www.finance-magazin.de/finanzierungen/deutschland/enbw-platziert-gruenen-hybrid-39576/.

3 Tennet, 2020, Green Finance Report.

4 EIB, 2020, Czech Republic: EIB signs a CZK 5 billion loan with ČEPS to modernise and reinforce the electricity transmission network, https://www.eib.org/en/press/all/2020-325eib-signs-a-czk-5-billion-loan-with-ceps-to-modernise-and-reinforce-the-electricity-transmission-network-in-the-czech-republic.

5 EIB, Italy: EIB lends EUR 1bn to E-distribuzione for new smart meters, https://www.eib.org/en/press/all/2017-217-eib-lends-eur-1bn-to-e-distribuzione-for-new-smart-meters 6 EIB, 2021, Belgium: EIB supports rollout of smart meters in Flanders by Fluvius, https://www.eib.org/en/press/all/2021-064-eib-supports-rollout-of-smart-meters-in-flanders-byfluvius Sources: 1 DotaceEU.cz, European Funds after 2020, 2020 https://dotaceeu.cz/getmedia/b0feb716-6d44-400f-be8b-4ac044c1505a/Evropske-fondy-v-CR-po-roce-2020WEB_2.pdf.aspx?ext=.pdf 2 European Commission, 2021, Horizon Europe, https://ec.europa.eu/info/research-and-innovation/funding/funding-opportunities/funding-programmes-and-open-calls/horizoneurope_en 3 European Commission, 2021, InvestEU Fund, https://europa.eu/investeu/investeu-fund_en 4 European Commission, 2021, More than €290 million for nature, environment and climate action projects, https://cinea.ec.europa.eu/news/more-eu290-million-natureenvironment-and-climate-action-projects-2021-11-25_en 5 Aku-Bat CZ Association for Energy Storage, 2021, Batteries as a source for flexibility for 2030, https://open.unicornuniversity.net/en/european-green-deal-enabled-by-it.

1 DotaceEU.cz, European Funds after 2020, 2020, https://dotaceeu.cz/getmedia/b0feb716-6d44-400f-be8b-4ac044c1505a/Evropske-fondy-v-CR-po-roce-2020WEB_2.pdf.aspx?ext=.pdf 2 European Commission, About the Connecting Europe Facility, 2021, https://cinea.ec.europa.eu/connecting-europe-facility/about-connecting-europe-facility_en 3 European Commission, ACON Smart Grids, 2018, https://ec.europa.eu/inea/en/connecting-europe-facility/cef-energy/10.4-0017-czsk-w-m-18

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1 European Commission, More than €290 million for nature, environment and climate action projects, 2021, https://cinea.ec.europa.eu/news/more-eu290-million-natureenvironment-and-climate-action-projects-2021-11-25_en 2 European Commission, LIFE Programme, 2021, https://cinea.ec.europa.eu/life_en 3 European Commission, Funding & tender opportunities – Programme for the Environment and Climate Action (LIFE), 2021, https://ec.europa.eu/info/fundingtenders/opportunities/portal/screen/opportunities/topicsearch;callCode=null;freeTextSearchKeyword=;matchWholeText=true;typeCodes=1,0;statusCodes=31094501,31094502,31094503;programmePeriod=2021%20%202027;programCcm2Id=43252405;programDivisionCode=null;focusAreaCode=null;destination=null;mission=null;geographicalZonesCode=null;programmeDivisionProspect=nul l;startDateLte=null;startDateGte=null;crossCuttingPriorityCode=null;cpvCode=null;performanceOfDelivery=null;sortQuery=sortStatus;orderBy=asc;onlyTenders=false;topicListKey =topicSearchTablePageState 1 DNV GL, A state of the art review of demand side flexibility - Report to the Swedish Energy Markets Inspectorate, 2020, https://cem12mi6chile.com/cms/wpcontent/uploads/2021/05/A%20state%20of%20the%20art%20review%20of%20demand%20side%20flexibility%20-%20Martin%20Nilsson.pdf 1 DNV GL, A state of the art review of demand side flexibility - Report to the Swedish Energy Markets Inspectorate, 2020, https://cem12mi6chile.com/cms/wpcontent/uploads/2021/05/A%20state%20of%20the%20art%20review%20of%20demand%20side%20flexibility%20-%20Martin%20Nilsson.pdf 1 Element Energy, 2021, SHURA Energy, Agora Energiewende, Sector Coupling for Grid Integration of Wind and Solar, https://static.agoraenergiewende.de/fileadmin/Partnerpublikationen/2021/SHURA_Sector_Coupling/sector_coupling_for_grid_integration_of_wind_and_solar.pdf 1 Janicek, Electricity Law and Regulation in the Czech Republic, 2015, https://cms.law/en/int/expert-guides/cms-expert-guide-to-electricity/czech-republic 2 ČEPS, About us, 2021, https://www.ceps.cz/en/about-us 3 ERO, About the office, 2021, https://www.eru.cz/cs/o-uradu 1 Smart Energy International, One of the largest storage plants in the Czech is up, 2020, https://www.smart-energy.com/regional-news/europe-uk/one-of-the-largest-energystorage-plants-in-the-czech-republic-is-up/ 2 Alfen Mega Energy Storage, 2017 https://alfen.com/en/news/solar-global-selects-alfen-supply-mega-energy-storage-system 3 EON, 2018, Dotační projekt – Mydlovary, https://www.eon.cz/mydlovary/

Acronyms BAU

Business as Usual

BEV

Battery electric vehicle

BIK

Benefit in kind

CAPEX

Capital Expenditures

CC

Carbon Capture

CCU

Carbon Capture and Use

CCUS

Carbon Capture, Use and Storage

CCS

Carbon Capture and Storage

CCfD

Carbon Contract for Difference

CDA

Carbon Direct Avoidance

CEE

Central and Eastern European region

CEF

Connecting Europe Facility

CF

Cohesion Fund

COM

European Commission

CSP

Clean Steel Partnership

CZ

Czechia / Czech Republic

DNSH

Do no significant harm principle

EA

Emission Allowances

ECSC

European Coal and Steel Community

EED

Energy Efficiency Directive

EIB

European Investment Bank

EPBD

Energy Performance of Buildings Directive

ESF+

European Social Fund

ESIF

European Structural and Investment Funds

ERDF

European Regional Development Fund

EU ETS

EU Emissions Trading System

GBS

Green Bond Standard

H2

Hydrogen gas-powered vehicles

ICE

Internal combustion engine

IEA

International Energy Agency

JTF

Just Transition Fund

LTRS

Long-term Renovation Strategy

MFF

Multiannual Financial Framework

MoIT / MPO

Ministry of Industry and Trade

MWt

Megawatt thermal

NACE

Nomenclature of Economic Activities

NECP

National Energy and Climate Plans

NG

Natural Gas (fossil gas)

NGEU

Next Generation EU

OPEX

Operating Expenditures

PHEV

Plug-in hybrid electric vehicles

R&D

Research and development

RRF

Recovery and Resilience Facility

RRP

Recovery and Resilience Plan

SMEs

Small and medium-sized enterprises

TA

Technical Assistance

TCP

Technology Collaboration Programme

TEN-E

Trans-European Networks for Energy

TEN-T

Trans-European Transport Network

TJTP

Territorial Just Transition Plan

TWh

Terawatt hours

VAT

Value added tax

ZEV

Zero-emission vehicle

Definitions Agrivoltaics

Blast Furnace Blended Finance Instruments

This technology generates renewable electricity through large ground-mounted photovoltaic systems installed on farmland that is simultaneously used for food production. It has the potential to reduce land competition through a dual use of the land. With a suitable technical design, agrivoltaics can increase resilience of crops and agricultural yields beyond just improving land use efficiency.

BF

Integrated blast furnace is a type of metallurgical furnace used for smelting to produce industrial metals, generally pig iron, but also lead or copper.

The strategic use of finance to attract or mobilize additional funds through other EU financial instruments, member state co-financing, or private sector investment to achieve policy objectives. Instruments are often designed to provide financial safety nets or hedge certain risks through e.g. credit insurance facilities.

Building-integrated photovoltaics

BIPV

Building components which fulfil classic functions such as thermal insulation, protection against wind and weather or also architectural functions, in addition to generating electricity.

Basic Oxygen Furnace

BOF

A vessel used to convert pig iron into steel

Building Performance Institute Europe

BPIE

A thinktank on the sustainability and decarbonization of the building sector, founded by the European Climate Foundation and partly funded by Horizon.

Battery Electric Vehicle

BEV

Also called, all-electric vehicle, only electric vehicle, pure electric vehicle, or zero-emission vehicle (ZEV). BEVs use chemical energy stored in rechargeable batteries without secondary sources of propulsion. They do not use internal combustion engines (ICEs) but electric motors or motor controllers. Often BEV refers to light-weight automobiles, but can also include bikes, vans, trucks, etc.

Business-As-Usual Scenario

BAU

A baseline scenario that examines the consequences of continuing development of current trends in e.g. the economy, demographics, technological innovation, climate change and human behaviour. Often refers to an outcome of a scenario analysis, e.g. as a contrast to the outcomes of EUCO scenarios.

Carbon contracts for difference

CCfDs

CCfDs are policy instruments for supporting the deployment of new ultra-low carbon projects by ensuring a guaranteed carbon price to make up the cost-difference relative to a reference technology. They can be designed to reduce the up-front investment cost for developers, give creditors a higher security for their loans and minimize the downstream costs for consumers. CCfDs work to accelerate R&D and ensure new innovative low carbon/deep decarbonization technologies become commercially viable sooner relative to conventional technologies and have a shorter time period required for commissioning.

Carbon pricing Carbon capture, utilization and storage Circular economy

Putting a price on carbon that captures the external costs caused by their emissions. Carbon prices can be set via taxation or cap-andtrade schemes.

CCUS

Carbon capture and storage (CCS) and carbon capture and utilization (CCU) technologies that aim to capture CO2 emissions from point sources, such as industrial sources, to prevent emissions from entering the atmosphere.

The purpose of a circular economy is to decouple economic growth from the consumption of non-renewable resources. It is a method of economic development that benefits enterprises, society and environment because of its restorative and regenerative characteristics.

The circular economy can be achieved via new resource management systems, nutrient flow systems and reverse logistics systems, which makes it possible to return, classify and reuse products. A circular economy follows the 3R principle of Reducing, Reusing and Recycling materials.

Cleaner Transport Facility

CTF

Initiative of the EIB to support the funding of the development and deployment of cleaner vehicles and their needed infrastructure. It is a one-stop shop that provides technical assistance and access to transport-related loans of the EIB itself and grants, loans, debt guarantees of CEF, TEN-T, Horizon and through JASPERS (technical assistance) and ELENA (technical assistance).

Combined heat and power

CHP

Also known as cogeneration, this implies that heat and electricity are produced simultaneously in one process. Use of combined heat and power helps to improve the overall efficiency of electricity and heat production as these plants combine electricity production technologies with heat recovery equipment.

Component (RRF context)

Recovery and Resilience Plans should be composed of reforms and investments grouped into components. A component is a constituent element or a part of the RRP. Each component should reflect related reform and investment priorities in a policy area or related policy areas, sectors, activities or themes, aiming at tackling specific challenges, forming a coherent package with mutually reinforcing and complementary measures.

Concessional loans

Also known as “patient debt”, these are loans that allow more flexibility on the part of the borrower, often in terms of longer maturities, longer grace periods, lower collateral requirements, subordinated debt or technical assistance. Concessional loans are often issued by financial non-governmental organizations or development banks as opposed to commercial banks.

Deep renovation

Achieve a 60% reduction of energy demand in a given building, as compared to 30% for shallow renovations and 40% for medium renovations.

Digital target (RRF context)

Each Recovery and Resilience Plan should allocate at least 20% of the total plan allocation to digital measures.

District heating system

DH

A system where heat is distributed from a central point through a network of insulated pipes fed by various heat sources, such as heat from heat and power plants, excess heat from industry, and heat from fossil combustion. In the future, district heating may be fed by heat and power plants fuelled by (sustainably produced) biomass, surplus heat from industry, and a combination of other renewables such as solar, geothermal, or heat pumps.

Do it yourself (building renovation DIY context)

The DIY market aims to help customers improve their home without the need for any extra professional help. Oftentimes, these renovations are shallow, low-quality, step-by-step renovations that do not make a substantial difference in lowering energy use of a home.

Do no significant harm principle

Principle under the EU Sustainable Finance Taxonomy: there are six environmental objectives to which no significant harm should be done: (i) climate change mitigation, (ii) climate change adaptation, (iii) water and marine resources, (iv) the circular economy, (v) pollution prevention and control, and (vi) biodiversity and ecosystems. For the RRF, technical guidance has been published on the application of the principle.

DNSH

Direct Reduced Iron

DRI-C/H

Iron ore in the form of lumps, fines or pellets that has the oxygen removed by using hydrogen (H) or carbon monoxide (C)

Electric Arc Furnace

EAF

A furnace that heats material by means of an electric arc, especially for steel-making

Energy Service Company

ESCO

Companies that supply and install equipment that incur energy savings. ESCOs can also arrange the financing of their operation, sometimes tying their level of success to their renumeration.

EURO 7

European emissions standards for petrol and diesel cars. Rounds of proposals and feedback have been completed for a revision and Commission adoption is planned for Q4 of 2021.

European Fund for Strategic Investment

EFSI

Also known as the Juncker Plan. Initiative launched in 2015 by the EIB Group and the COM to boost the economy by mobilizing private financing for strategic investments.

European Investment Bank

EIB

The long-term lending institution of the EU; a public bank owned by the 27 member states, shared based on economic weight at the time of member state accession. Its activities are funded via bond issuance in international capital markets.

EU Climate Law

Aims to write into law the goal set out in the European Green Deal – namely, for Europe’s economy and society to become climateneutral by 2050.

European Semester

ES

An annual cycle of coordination and monitoring of the EU’s economic policies and national budgets.

EU Emissions Trading System

EU ETS

A cap-and-trade system administered by the EU. Consists of carbon emissions ceilings (caps) that are lowered over time. Companies can buy or sell emission allowances, trading them when needed.

Electric Vehicle

EV

An electric vehicle uses one or more electric motors for propulsion. Can include only electric motors or battery electric vehicles (see BEV) or combustion motors or plug-in hybrid electric vehicles (PHEV).

Flagship

As used in this assessment context, taken as country-specific recommendations for future key transformative investments and policy reforms that can be used to accelerate climate action

(New) Green Savings Programme (N)GS

The Czech Ministry of the Environment administers this energy savings program in family houses and apartment buildings funded by the State Environmental Fund of the Czech Republic. It supports the reduction of the energy intensity of residential buildings (complex or partial thermal insulation), construction of houses with very low energy intensity, environmentally friendly and efficient use of energy sources and renewable sources of energy (RES).

Greenhouse gases

Gaseous constituents of the atmosphere, both natural and anthropogenic, that absorb and emit radiation, which together causes the greenhouse effect. Water vapour, carbon dioxide, nitrous oxide, methane, and ozone are the primary GHGs in the Earth’s atmosphere.

GHG

Grant

Grants are non-repayable funds that are given from a government, foundation, corporation to a recipient, for specific projects for reimbursement of necessary costs. Grants often require some level of conditions and mandatory reporting of activities and results.

Green hydrogen

Hydrogen that is produced with sustainable energy, most often through electrolysis where water is split into hydrogen and oxygen.

Green Public Procurement

A voluntary instrument streamlining and promoting the sustainable production and consumption of goods and services by the EU’s public institutions with comprehensive and verifiable environmental criteria.

Green Bonds

A fixed-income instrument to finance climate-related or other environmental projects, often linked to specific assets like hydropower projects. The first green bonds were issued by the World Bank in 2009. They are often combined with tax incentives to make them a relatively attractive investment. The sustainability of green bonds is verified by third parties.

Financial Guarantee

A financial commitment of third-party (guarantor) to repay a percentage of losses in case a borrower cannot honour his repayments to a credit provider, both interest and principal components. Guarantees are insurance policies that often allow investors some financial breathing space to invest a larger share of their funds.

Heat pump

HP

Investment

Device used to heat or cool building by transferring thermal energy from a warmer to a cooler place or vice versa.

The RRF uses a broad concept of investment as capital formation in areas such as fixed capital, human capital and natural capital. This would also cover for instance intangible assets such as R&D, data, intellectual property and skills.

Internal Combustion Engine

ICE

Heat engine in which the ignition and combustion of and fuel occurs within the engine itself, i.e. with an oxidant (usually air) to convert the energy from combustion chamber that is an integral part of the working fluid circuit. ICE can be powered with fossil fuels, biofuels or e-fuels.

Important Projects of Common European Interest

IPCEI

Special projects that can promote the innovation of a specific technology up to industrial scale on the basis of a common European interest. This allowance is rather new as innovations are generally only regionally allowed as R&D projects to avoid unfair competition between MS. IPCEI’s are currently limited to microelectronics and batteries but an IPCEI for hydrogen technology is being implemented.

Lead market

In innovation theory, a first sub-market where a specific innovation can be early adopted to spur adoption also by other “lag” markets, e.g. by internationalization. Policies to create lead markets are focussed on creating demand for a specific technology or concept.

Lock-in effects

Lock-in effects come into play when there are substantial costs or other barriers for consumers to get a similar product or service from another vendor. Consequently, consumers or businesses become dependent on one provider. Furthermore, lock-in effects may create serious barriers to market entry, therefore undermining fair competition.

Long-term renovation strategy

LTRS

Strategy enacted by the EU (Directive 2010/31) to support the renovation of Member States’ national stocks of residential and nonresidential buildings, both public and private, into a highly energy efficient and decarbonised building stock by 2050, facilitating the cost-effective transformation of existing buildings into nearly zero-energy buildings.

Minimum Energy Performance Regulations

MEPR

Performance requirements for any energy-using technology, effectively limiting the amount of energy that may be used for a particular task.

Minimum Energy Performance Standards

MEPS

Regulations that require buildings to meet a minimum performance standard, specified in terms of a carbon or energy rating or minimum renovation measures, by a certain deadline or at a certain point in the natural life of the building, e.g. at the time of sale or when other construction work is undertaken.

Mobility as a Service

MaaS

Denotes a shift away from personally owned modes for transportation towards shared vehicles that can be booked, planned through joint digital channels. Examples for urban mobility include the business models of companies like Uber and Lyft.

Multiannual Financial Framework

MFF

Also called the financial perspective, the MFF is a 7-year framework regulating the EU’s annual budget by setting ceilings of spending for broad policy themes.

National Energy and Climate Plans

NECP

EU countries needed to establish a 10-year integrated national energy and climate plan (NECP) for the period from 2021 to 2030 to show how they meet the 2030 energy and climate targets (within the Energy Union governance).

Next Generation EU

NGEU

The temporary instrument designed to boost the recovery from the COVID-19 pandemic, includes the recovery and Resilience Facility

One-stop shop

A facility or location where a “customer” can get all the help they need in one go to reach a certain goal, delivered by one provider at a clear central location with low administrative barriers.

Plug-in Electric Vehicle

PEV

Includes battery electric vehicles and plug-in hybrid electric vehicles. Road vehicles that be charged with external sources of electricity, stored in battery packages.

Plug-in Hybrid Electric Vehicle

PHEV

Hybrid electric vehicle that uses batteries to power an electric motor and another fuel, such as gasoline, to power an internal combustion engine (ICE).

Power Purchasing Agreement

PPA

PPAs are long-term contract where a business or public entity agrees to purchase electricity directly from an energy generator, with agreed price terms for the sake of financial stability often for a period of 15 to 25 years.

Quasi-equity

Quasi equity instruments are long-term financial instruments, with multiple variants that fall between debt and equity, including subordinated loans, convertible bonds and preferred stocks. Can be more complicated and costly to administer.

Recovery and Resilience Facility

RRF

Makes €672.5 billion in loans and grants available to support reforms and investments undertaken by EU countries with the aim to mitigate the economic and social impact of the coronavirus pandemic and declared objective to make economies and societies more sustainable, resilient and better prepared for the challenges and opportunities of the twin transition

Recovery and Resilience Plan

RRP

Every Member States wishing to access recovery funding under the RRF has to prepare a Recovery and Resilience Plan.

Reform (RRF context)

An action or process of making changes and improvements with significant impact and long-lasting effects on the functioning of a market or policy, the functioning or structures of an institution or administration, or on progress to relevant policy objectives, such as growth and jobs, resilience and the twin transitions.

Renovation Wave

Comprehensive EU strategy put forward by the EC in 2020 to support climate neutrality, economic recovery through actions in building sector with detailed list of policies, measures and tools that must be put in place to overcome existing barriers to renovation and mobilize all actors, including citizens, local authorities, investors and the construction industry. The strategy has a dual ambition of energy gains and economic growth and aims to double annual energy renovation rates in the next 10 years.

Repayment grant

Grant repayment, i.e. if the project achieves a certain energy performance level.

Retrofitting

Process of adding something new to the original building or structure, aiming to improve the functionality of the building by adding new technology, building systems or equipment, such as heating systems, but it might also refer to the fabric of a building, for example, retrofitting insulation or double glazing.

Scenario

Explain use of scenarios?

SECAP

Sustainable Energy and Climate Action Plan; local authorities which join the Covenant of Mayors for Climate and Energy – Europe initiative commit to submitting an action plan within 2 years of sign-up. This action plan is a key implementation tool. It defines mitigation and adaptation goals and is based on a Baseline Emission Inventory and a Risk & Vulnerability Assessment, which provide an analysis of the current situation.

Shallow renovation

A building renovation that is performed quite often (rate of 3%) with an average energy efficiency ambition level reduction of 32% (in energy use for space heating by 2050 compared to 2010), may fail to treat the building envelope as a whole, and includes a low use of renewable energy. This type of renovation misses both environmental targets (CO2-emission and final energy savings) while not providing substantial economic advantage compared to a deep renovation.

Soft Loan

Loans with no interest or below-market rate of interest. May also have lenient terms, such as extended grace periods or interest holidays. OFten used to encourage investment supporting energy policies and are often complementary to subsidies of fiscal incentives.

Small and medium-sized enterprises

SMEs

SME status depends on both the size and resources of a private enterprise. SMEs have a workforce of under 250 people and have either an annual turnover lower than €50 million or a balance sheet total lower than €43 million.

Structural reforms

Structural reforms generally refer to liberalizing economic structures in the national context, including making labour markets more adaptable, liberalizing services, altering taxation systems and restructuring the welfare state.

EU Taxonomy for sustainable activities

The EU Taxomony regulates a sustainability-related classification system of financial products. Providers of financial products and services need to use the taxonomy to report the sustainability of their portfolios. To comply with the EU Taxonomy, companies need to prove that their activities make or enable a “substantial contribution” to climate mitigation or adaptation and fulfil the do-nosignificant-harm principle for biodiversity, water, the circular economy and pollution targets.

Territorial Just Transition Plans

TJTP

Central element of the EU Just Transition Mechanism, which defines territories in which the Just Transition Fund will be used and outlines challenges in each territory, development needs and 2030 targets.

Total cost of ownership

TCO

The total cost of ownership of a vehicle is typically calculated for financial purposes by companies to determine the direct and indirect costs of owning the vehicle. In this case, it includes the purchase price of the vehicle plus the costs of operating it over an expected period of time.

Twin transition

The green transition and digital transformation

Trigger points (for renovation)

Key moments in the life of a building (I.e. rental, sale, change of use, extension, repair or maintenance work) when carrying out energy renovations would be less disruptive and more economically advantageous than in other moments. Taking advantage of these moments would facilitate investment decisions to undertake energy renovation works.

Trans-European Transport Network

TEN-T

A planned network of roads, railways water infrastructure and airports across Europe, with ten core networks to be completed in 2030 and a larger comprehensive network to be completed in 2050. The ultimate purpose of the network is to ensure the cohesion, interconnection and interoperability of the trans-European transport network, as well as access to it.