Thursday, 23 July 2026
The Czech Republic is set to introduce a capacity market after the European Commission approved a support mechanism with an estimated budget of €3.1 billion to €6.2 billion over ten years. The scheme is intended to encourage investment in flexible electricity generation and storage as the country phases out coal-fired power plants.
The mechanism will be financed through charges paid by electricity consumers, with the first capacity contracts covering the period from November 2030 to October 2031.
Unlike the wholesale electricity market, where generators are paid only for the electricity they produce, the new system will compensate participants for making generation or storage capacity available during periods when the electricity system is under stress.
“A capacity mechanism acts as an insurance policy for the electricity system. It rewards providers for ensuring sufficient capacity is available when renewable generation is low, demand is high or major power plants are unavailable,” said Martin Pacovský, Investment Director at ARETE Energy Transition.
The scheme responds to growing concerns over future electricity supply as coal-fired generation is gradually retired. According to the European Resource Adequacy Assessment (ERAA) 2025, the Czech Republic could begin facing risks of insufficient dispatchable generation capacity from 2028.
Eligible participants will include existing and new power plants, battery energy storage systems, aggregated distributed resources and cross-border capacity providers. Support will be allocated through competitive auctions in which participants bid the level of payment required per megawatt of available capacity.
Most contracts will have a one-year duration, although capital-intensive new projects may receive agreements of up to 15 years, improving their ability to secure long-term financing. The mechanism also includes emissions limits that significantly restrict the participation of coal-fired generation.
ARETE Energy Transition identifies modern gas-fired combined heat and power (CHP) plants as one of the technologies capable of providing flexible generation. By simultaneously producing electricity and useful heat, CHP facilities can achieve overall efficiencies of between 80% and 90% when the heat is effectively utilised.
The final cost of the mechanism for households and businesses has not yet been determined. According to ARETE, the overall impact on electricity bills will depend on the volume of capacity procured, auction outcomes and how costs are allocated among different categories of electricity consumers. Greater competition between technologies such as cogeneration, battery storage and demand-side flexibility is expected to help reduce overall costs.
