Moving forward towards the low carbon transition in Czechia
Low carbon transition presents an opportunity for Czechia to transform not only to clean and innovative, but also to inclusive and more resilient economy and society. While overall benefits are clear, the transition is connected with large scaling up of initial investment in low-carbon solutions in all sectors, and there remain several key barriers to untapping this investment potential.
The low-carbon transition must be fuelled by substantial levels of investment that need to be leveraged in order to reach the neutrality targets. We have calculated that just to reach the 2030 renewable energy targets as they have been set out in the Czech National Energy and Climate Plan, over CZK 300 billion (or EUR 11.5 billion), i.e., roughly CZK 30 billion per year (or EUR 1.2 billion) will need to be invested into new renewable energy installations. Similarly, the low carbon transition in one of the key sectors in the Czech energy system, the district heating sector, will bring about CZK 100 billion (or EUR 3.8 billion) of low-carbon investment until 2030 (CZK 10 billion or EUR 0.4 billion yearly).
Compared to the current low-carbon investment flows, the investment efforts need to be massively scaled up. In 2017, the tracked investment in renewable energy supply and infrastructure (including built-in renewables) reached only CZK 5 billion (EUR 0.2 billion), six times lower than the calculated investment need. The district heating sector saw over CZK 5 billion invested yearly in greenhouse gas mitigation. That is half of what is needed in the coming years. Moreover, only one third of the recent investment was compliant with the EU Taxonomy. The building sector may face a similar investment gap and a potential carbon lock-in, given the recent investments in residential sector gas and even coal boilers.
The private sector will be a key driver in raising the capital needed for the low carbon transition. Yet a number of barriers still prevent matching the available financial sources (both private and public) to the investment needs.
Firstly, the project pipeline is missing. Specifically, the SMEs and small municipalities lack the capacity (both personal and technical) to develop complex projects to fully use the energy efficiency and low-carbon potential. The InvestEU Advisory Hub by the European Investment Bank is a highly useful tool, but it remains more favourable to bigger pools of projects. The existing mechanisms by the Czech Moravian Guarantee and Development Bank, CzechInvest, and others should be used more effectively to assist the small players, who form a backbone for the success (or failure) of the low-carbon transition process.
Second, the existing public programmes supporting the low carbon transition have been, at times, inadequately coordinated, and heavily based on one type of support: the investment grants. Such instruments have their place to support emerging technologies and/or specific target groups (such as vulnerable households). However, their omnipresence in the Czech financing landscape may have had a distorting effect. Full plethora of financial instruments (including traditional soft loans, guarantees, but also tax incentives) could be used better to trigger the investment needed, and to also potentially lower the administrative burden that has been associated with the existing support schemes.
Third, the EU Taxonomy is one of the main supporting frameworks in the low carbon transition, defining sustainable investment and thus facilitating the low carbon transition. The Taxonomy will soon become the referential document with vast implications especially to coal-using sectors. It became evident in the case of the district heating sector. In short to mid-term, coal will be substituted by a combination of natural gas, biomass, and energy waste, with the highest share in natural gas. While the sector does not have many immediate alternatives on the heating supply side, and natural gas firing brings an immediate reduction of GHG emissions compared to coal, such installations must be seen as transitory and will have to be supplemented in the coming decades by either "greening of gas", or replaced entirely by other technologies. Lock-in effects or stranded assets should be avoided by all means.
Most low carbon investment needs to be unlocked in the coming decade. It will require a massive effort both by private and public actors. The barriers that prevent the full use of both energy efficiency and low-carbon potential can be overcome. We know what needs to be done and the time to start doing it is now.
