The long-awaited amendment to the Czech Energy Act, known as “Lex OZE III”, has officially been passed by the Parliament. While it introduces significant and predominantly positive changes to the clean and renewable energy sector, it has also sparked considerable controversy. The proclaimed objective of the legislation is to accelerate the transition to sustainable energy while addressing regulatory and market challenges. Nevertheless, it lags behind the technical and commercial realities of the European market; it implements a European directive that the Czech Republic should have adopted over four years ago.
Key Updates
First and foremost, Lex OZE III officially introduces several important concepts to the Czech energy legislation, including energy storage, aggregation, and flexibility. The fact that these concepts were previously not acknowledged in Czech energy legislation created practical obstacles for investors.
Another major change is the increase in the threshold for requiring a construction permit and a license for electricity generation or storage from 50 kW to 100 kW. Similarly, the limit for simplified construction procedures has been raised from 100 kW to 250 kW.
Energy storage is now recognized as an independent energy source, allowing standalone facilities to connect to the distribution grid at any location instead of being restricted to existing sources. Furthermore, the amendment introduces a specific 25-year license for electricity storage.
In terms of market flexibility, aggregation is now defined as the process of pooling flexibility from electricity market participants to offer it on the market or manage deviations. Entities engaged in aggregation are required to hold a general electricity trading license, not any specialized one. Flexibility is also formally defined as the ability to adjust electricity supply to or from the grid based on market prices or demand fluctuations.
Additionally, consumer protection measures have been strengthened, with energy traders now required to disclose a "security index" that indicates the amount of electricity or gas pre-purchased to meet customer demand.
Controversies
Despite its ambitious goals, Lex OZE III has faced substantial criticism from municipalities and the renewable energy sector. A significant point of contention is the introduction of individual profitability checks for PV power plants commissioned in 2009 and 2010. This measure is perceived as penalizing efficient investors while favouring less economically savvy ones, potentially dampening investment enthusiasm in the Czech renewable energy market. Furthermore, it may be viewed as retroactive, posing arbitration risks for the Czech Republic, in particular taking into consideration the previously introduced measures aiming to reduce the subsidy received by these sources, including the so-called “solar tax” or sector profitability checks carried out in 2019 – 2022.
Another contentious amendment, referred to as the "construction rider," imposes restrictions on Prague, Brno, and Ostrava regarding their building regulations. These cities can, for example, no longer coordinate tree planting with technical infrastructure development, leading to strong opposition from local governments. Despite the resistance, this amendment ultimately passed, limiting the regulatory powers of major cities in urban planning. However, the Minister of Industry and Trade mentioned that this amendment was not intentional and indicated that it should be rectified soon.
Conclusion
As the amendment is anticipated to be signed by the president soon, with most provisions going into effect five months later (late summer 2025), attention is shifting to its real-world implications. Only time will show if LEX OZE III will promote long-term renewable energy growth or inadvertently hinder progress. Either way, some municipalities are already considering legally challenging particular provisions, and three international businesses active in the Czech energy market have indicated a readiness to pursue arbitration proceedings against the state because of the expected negative impacts of the individual profitability checks.
This is the first article in the series covering LEX OZE III; further articles focusing on specific amended topics in more detail will follow soon. Stan tuned!
By Lukas Vymola, Counsel, Jan Gerych and Stefan Potocnak, Senior Associates, and Tomas Jonas, Associate, Dentons
