On 16 July 2026, the European Commission (the “EC”) approved the Czech capacity mechanism under EU State aid rules. It is the first capacity mechanism to be approved under the Clean Industrial Deal State Aid Framework (“CISAF”). The EC’s decision approving State aid in the form of a capacity mechanism removes a major legal obstacle to the introduction of the mechanism, which is intended to help ensure sufficient generation capacity in the Czech electricity system.^[1]

A capacity mechanism primarily remunerates capacity availability rather than electricity generation. Its participants undertake to make capacity available during periods of electricity scarcity and receive a capacity payment for that availability. The mechanism must therefore be distinguished both from support for electricity generation itself (in particular under Act No. 165/2012 Coll.) and from the provision of ancillary services (in particular balancing services).

The key parameters of the approved mechanism are as follows:

• Broad range of participants. Existing and new generation facilities, electricity storage facilities, cross-border capacity and demand-side response (i.e. consumers willing to reduce their consumption during periods of scarcity in return for remuneration) will be eligible to participate. All participating units must comply with the applicable CO₂ emission limits under EU law.^[2]
• Technology-neutral and competitive. Support will be awarded through competitive auctions based on clear, objective and non-discriminatory criteria. Bidders will compete on the basis of the amount of support requested per MW of capacity available during scarcity situations and will have to meet technical pre-qualification requirements before participating.
• Duration, contracts and first delivery period. The State aid scheme has been approved for ten years from July 2026, and individual capacity agreements may be concluded for up to fifteen years. The first agreements are intended to secure capacity availability for the period from November 2030 to October 2031; preparatory steps and auctions must therefore take place sufficiently in advance.
• Budget and financing. The estimated total budget is between EUR 3.1 billion and EUR 6.2 billion. The exact amount will depend on auction outcomes and system needs. The mechanism is to be financed through charges paid by electricity consumers.^[3]

The EC found the mechanism to be necessary, appropriate and proportionate. In particular, it based its assessment of the need for the mechanism on the European Resource Adequacy Assessment (ERAA) 2025, which forecasts new security-of-supply risks for the Czech Republic from as early as 2028. At the same time, the competitive design is intended to limit support to actual financing needs and minimise distortions of competition.

The approval completes another important stage of the process at EU level. As we informed you in one of our previous articles^[4], in March 2026 the EC issued an opinion on the Czech implementation plan, thereby satisfying one of the conditions for introducing a capacity mechanism under the Electricity Market Regulation. The present decision confirms that the notified State aid scheme is compatible with the internal market under Article 107(3)(c) TFEU and CISAF.

The EC’s approval does not in itself launch the auctions or confer any entitlement to support on investors. The mechanism must still be implemented at national level. On 10 July 2026, the Ministry of Industry and Trade published a draft measure of a general nature under Section 35 of the Energy Act, which is intended to require the transmission system operator to procure additional capacity in a non-discriminatory and cost-efficient manner.^[5]

The details of the Czech implementation will be decisive for investors. The economics of individual projects will be affected in particular by the auction schedule and volumes, pre-qualification rules, the method for accounting for the actual availability of individual technologies, the duration of individual agreements and the penalty regime. The non-confidential version of the EC’s decision in case SA.120741, which may contain further conditions and commitments by the Czech Republic, has not yet been published.

Nevertheless, this represents a major step forward for the Czech energy sector. For the first time, an approved framework is in place that may reduce the investment risk associated with new dispatchable and flexible resources through long-term capacity payments. However, the practical significance of the mechanism will become clear only once its final national design is known and the first auctions have taken place.

We will keep you informed of further developments.

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[1]     European Commission, Press Release IP/26/1611, 16 July 2026; State aid decision in case SA.120741. Available here.

[2]     Under Article 22(4) of the Electricity Market Regulation, generation capacity that commenced commercial production on or after 4 July 2019 and emits more than 550 g of CO₂ of fossil-fuel origin per kWh of electricity may not participate in a capacity mechanism or receive capacity payments or commitments for future payments. From 1 July 2025, the same applies to generation capacity that commenced commercial production before 4 July 2019 where its emissions simultaneously exceed 550 g CO₂/kWh and, on an annual average, 350 kg CO₂ per installed kW of electrical capacity. The thresholds are calculated on the basis of the design efficiency of the generation unit, meaning net efficiency at nominal capacity under the relevant ISO standards. See Article 22(4) of Regulation (EU) 2019/943 of the European Parliament and of the Council of 5 June 2019 on the internal market for electricity.

[3]     Financing will therefore be provided through the system component of the regulated electricity price.

[4]     For the preceding steps towards introducing a capacity mechanism, see bpv BRAUN PARTNERS, The Czech Republic Opens the Way for Potential Notification of a Capacity Mechanism, 10 April 2026. Available here.

[5]     Ministry of Industry and Trade, Draft Measure of a General Nature Introducing a Capacity Mechanism, published on 10 July 2026. Available here.

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This material is for general information on current topics only, it is not advice. It does not take into account any special circumstances, financial situations or special requirements of the addressees. Recipients should therefore always seek appropriate professional services for the information provided. Notwithstanding the careful compilation of this material, bpv Braun Partners s.r.o. advokáti, its partners, associates or co-operating solicitors and tax advisers cannot guarantee the accuracy or completeness of the information contained herein and accepts no responsibility for acting or refraining from acting on the basis of the information contained in this material