Czech Republic: Wholesale Electricity Trading In Czech Republic: A Basic Primer To Electricity And Gas Wholesale Trading

A. Wholesale electricity trading

1. Background information

Electricity trading in the Czech Republic is governed by a range of primary, secondary and tertiary legislation. The main piece of legislation is the Energy Act (Energetický zákon), which sets out the conditions for business activities, regulation and public administration in the energy sector. More detailed provisions on trading are comprised in the Electricity Market Rules Decree (Vyhláaka ERU o pravidlech trhu s elektřinou zásadách tvorby cen za činnosti operátora trhu s elektřinou a provedení některých dalaích ustanovení energetického zákona).

2. Licence requirements

2.1. General aspects

Electricity trading in the Czech Republic is subject to licensing. The licence is granted by the Czech NRA (Energetický regulační úřad – ERO). Pursuant to Section 5 of the Energy Act, the applicant must meet a number of general and financial requirements. Details of the individual requirements for obtaining an electricity trading licence and documents needed are stipulated by the Energy Act and the Decree on Details Regarding Energy Sector Business Licensing (Vyhláaka o podrobnostech udělování licencí).

2.2. Conditions for licensing

  • Under Section 7a of the Energy Act and the recent practice of the NRA, an applicant who intends to trade electricity in the Czech Republic based on a licence for electricity trading issued by the competent authority of another EU member state, can apply to the Czech authority for recognition of such licence. The NRA will decide within 30 days. A corporate presence (see below) of the applicant in the Czech Republic is required.
  • Corporate presence in the Czech Republic: foreign applicants for an electricity trading licence must have a corporate presence in the Czech Republic. They may either (i) set up a Czech subsidiary that can apply for the electricity trading licence or (ii) maintain at least a branch in the Czech Republic.
  • Responsible representative: the applicant must have a responsible representative who is responsible for the execution of the electricity trading in accordance with the Energy Act and related legislation.
  • Proof of clean criminal record.
  • Proof of financial capability.

Furthermore, all traders who have obtained an electricity trading licence are required to register with the MO (Operátor trhu s elektřinou – CS OTE). Upon registration, an electricity trader shall become a registered market participant.

2.3. Timetable and fees for obtaining the licence

The procedure for obtaining an electricity trading licence usually takes up to 30 days. The fee for the licence is CZK 100,000 (approx EUR 4,000). The licence may be granted for a maximum period of five years and may be extended for another five years.

3. Trading requirements

3.1. General aspects

Electricity trading can be executed either through bilateral negotiated agreements (OTC) or on the spot market (day-ahead and intra-day market) operated by CS OTE as the market operator or on the Power Exchange Central Europe, a.s. (Energetická burza Praha - PXE) and on the Czech-Moravian Commodity Exchange, Kladno (Českomoravská komoditní burza Kladno – CMCEK).

3.2. OTC trading

Electricity Traders must conclude the following agreements in order to execute direct electricity deliveries:

  • Sale and Purchase Agreement (concluded between an Electricity Trader and a purchaser (eg, producers, other traders);
  • Agreement on Settlement of Imbalances (concluded between CS OTE and an Electricity Trader); and
  • Electricity Transmission Agreement (concluded with ČEPS, a.s. the Czech TSO) or a Distribution Agreement (concluded with the respective distribution system operator (DSO)

3.3. Spot and commodity exchange trading

  • Spot market trading

The Czech day-ahead market has been integrated with the Slovak day-ahead market since 1 September 2009. Czech Electricity Traders can now place bids for purchase and/or sale of electricity for the whole territory of Slovakia and the Czech Republic. CS OTE is the organiser of the day-ahead market on the Czech side.

CS OTE also operates the intra-day market. Trading on the intra-day market is conducted via a notice published on the internet that sets out all offers for the purchase and sale of electricity. When the intra-day market closes, the market operator moves the bids onto the balancing market. The balancing market is a forum for Electricity Traders that allows them to sell/purchase electricity to/from ČEPS, a.s. (the Czech TSO). All transactions registered on the intra-day market but not finalised are automatically transferred on the balancing market and become a part of this market.

  • Commodity exchange trading

PXE Trading

Electricity may also be traded on the PXE, exclusively in the form of commodity futures with physical settlement. The PXE offers power trading for Czech, Slovak and Hungarian power. The PXE´s regulated market is organised and controlled mainly pursuant to the Act on Commodity Stock Exchanges (Zákon o komoditních burzách).

Trading on the PXE is allowed only to participants who meet the conditions of participation in trading at the PXE in accordance with legal regulations, the PXE Rules, PXE Regulations and Settlement Rules.

The possibility of trading on the PXE is established on the basis of a Participation Agreement between the Electricity Trader and PXE. Together with the Participation Agreement, an Electricity Trader must present to the PXE other documents mentioned in the Participation Rules of PXE.

The individual contract trades at the PXE are monthly, quarterly or annually.

CMCEK Trading

Electricity can also be traded on the CMCEK. Trading can be done directly by the exchange members or by a broker (who is himself a member of the exchange).

4. Cross-border trading

4.1. General aspects

Generally, there are bottlenecks on all interconnectors on the Czech border. Therefore, the process of allocating cross-border transmission capacities of these bottlenecks is carried out by means of auctions.

ČEPS, a.s. as the TSO is responsible for the cross-border transmission of electricity in the Czech Republic. The general terms and conditions for cross-border transmission can be found in Regulation (EC) No. 714/2009, as well as in the ČEPS´s Cross-Border Transmission Rules (Pravidla provozování přenosové soustavy) and the ERO Decree on Electricity Market Rules (Vyhláaka o pravidlech trhu s elektřinou).

4.2. Capacity Auctions

The CS TSO employs the services of the Central Allocation Office (CAO), which organises coordinated auctions for the allocation of available transfer capacity on interconnectors within the CEE region.

Capacity allocation continues on interconnectors between the Czech Republic and Slovakia by means of implicit auctions in a joint day-ahead electricity market (market coupling). Intra-day capacity allocation for electricity trading was expanded on 1 December 2010 to include the interconnector between the Czech Republic and Poland.

5. Grid access

Traders are not required to have grid access to the transmission or distribution system, since they do not have any physical access. They are obliged to conclude an Electricity Transmission or Distribution Agreement under which they are entitled to use a grid for transmission or distribution of electricity from/to their customers.

B. Wholesale gas trading

1. Background information

Gas trading in the Czech Republic is governed by a range of primary, secondary and tertiary legislation.

Just as for electricity, the main piece of legislation is the Energy Act (Energetický zákon). Of further importance for gas market participants are the Transportation and Distribution System Operating Rules issued by the Ministry of Industry and Trade, and the Rules for Operators of Transportation Systems, Distribution Systems and Underground Gas Storage Facilities.

The Gas Market Rules Decree (Vyhláaka o pravidlech trhu s plynem) laying down the rules for the organisation of the gas market and for the development, allocation and use of typical gas supply profiles is also relevant to the gas trading sector.

2. Licence requirements

2.1. General aspects

Only a gas trading licensee may sell gas in the Czech Republic. A licensee is entitled to:

  • buy and sell gas from/to other gas market participants;
  • have the gas transported and distributed under the Transmission or Distribution Agreement with the TSO or a DSO; and
  • store an agreed volume of gas.

The gas trading licence is granted by the Czech NRA (Energetický regulační úřad – ERO). Pursuant to Section 5 of the Energy Act, the applicant must meet a number of general and financial requirements. Details of the individual requirements for obtaining a gas trading licence and the documents needed are stipulated by the Energy Act and the Decree on Details Regarding Energy Sectors Business Licensing (Vyhláaka o podrobnostech udělování licencí).

2.2. Conditions for licensing

  • Under Section 7a of the Energy Act and the recent practice of the ERO, an applicant who intends to trade gas in the Czech Republic based on a licence for gas trading issued by the competent authority of another EU member state, is entitled to ask the ERO for recognition of such licence. The ERO will decide on the recognition of such licence within 30 days. A corporate presence (see below) of the applicant in the Czech Republic is required.
  • Corporate presence in the Czech Republic: foreign applicants must have a corporate presence in the Czech Republic. They may either (i) set up a Czech subsidiary that can apply for the electricity trading licence or (ii) maintain at least a branch in the Czech Republic.
  • Responsible representative: the applicant must have a responsible representative who is responsible for the execution of the electricity trading in accordance with the Energy Act and related legislation.
  • Proof of clean criminal record.
  • Proof of financial capability.

2.3. Timetable and fees for obtaining the licence

The procedure for obtaining a gas trading licence usually takes 30 days. The fee for the licence is CZK 100,000 (approx EUR 4,000). The licence for gas trading may be granted for a maximum period of five years and may be prolonged for another period of five years.

3. Trading requirements

3.1. General aspects

Gas wholesale trading is based on bilateral gas supply agreements. Gas can also be traded on the Czech-Moravian Commodity Exchange, Kladno (Českomoravská komoditní burza Kladno – CMCEK).

3.2. Bilateral gas supply agreements

The gas system is divided into balancing zones for the purpose of capacity booking and balancing. Balancing entities, ie customers or gas traders for whom the market operator evaluates, clears and settles imbalances on a contractual basis are responsible for matching the quantities that they take from the transportation system with the quantities that they supply into the gas system each day.

A Gas Trader typically needs to conclude the following agreements in order to execute direct gas deliveries:

  • Sale and Purchase Agreement (Gas Supply Agreement) between a trader and a customer;
  • Agreement on united services of supply of gas between a trader and a customer;
  • Gas Transportation or Distribution Agreement between a trader and the TSO or respective DSO;
  • Agreement on Settlement of Imbalances between a trader and the market operator.

3.3. CMCEK Trading

Gas can also be traded on the CMCEK. Like electricity trading, gas trading can be done directly by the exchange members or by a broker (who is himself a member of the exchange).

4. Cross-border trading

4.1. General aspects

NET4GAS, s.r.o. (N4G) is the gas market TSO. In this capacity N4G organises cross-border transmission in the Czech Republic.

Regulation (ES) No. 715/2009 and the Network Code set forth the general terms and conditions for cross-border gas transmission.

4.2. Capacity Auctions

N4G shall allow all users of the system with a general contract and who satisfy the conditions of financial eligibility to participate in daily auctions for unused transportation capacity. N4G shall organise the auction, if there is no available firm transportation capacity and there is unused firm transportation capacity on at least one entry or exit border point.

Users of the system must demonstrate to N4G sufficient financial eligibility to meet their obligations under the Gas Transportation Agreement. The user of the system must demonstrate financial eligibility to N4G before submitting each bid in an auction or before the first gas day in which transportation is to commence under the Gas Transportation Agreement or before transfer of the contracted capacity.

5. Grid access

Traders are not required to have grid access to the transportation or distribution system, since they do not have physical access. They are obliged, however, to conclude a Gas Transportation or Distribution Agreement under which they are entitled to use the grid to transport gas from/to their customers.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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