Navigating Energy Law:

Navigating the energy maze – Why is legal certainty crucial?

The energy sector in the Czech Republic has undergone a dynamic and profound transformation in recent years. We are moving away from an era of large, centralized sources, often dependent on fossil fuels, towards decentralization, massive development of renewable sources, and an active role for consumers, who are becoming an integral part of the energy market. This revolution brings enormous opportunities for innovation, savings, and sustainability, but at the same time creates a complex legal maze in which it is easy to get lost without a deep understanding. For any entrepreneur, investor, or local government that wants to succeed in the energy sector, it is crucial to have a solid legal foundation and a clear strategy.

Without a deep understanding of the legal modules that govern the functioning of energy companies, you expose yourself to significant risks. These range from high financial penalties and loss of licenses to wasted investments and damage to your reputation. The aim of this article is to guide you through this complex legal environment, unravel its complexities, and show how legal certainty can be your greatest asset, enabling you not only to survive but also to thrive in this rapidly changing industry.

Author of the article: ​ARROWS (Mgr. Daniela Sobotková, office@arws.cz, +420 245 007 740)

1. Basic building blocks: Licenses and permits in the energy sector

Every entity that intends to do business in the energy sector in the Czech Republic must obtain the relevant licenses and permits. This process is complex and requires detailed knowledge of the legal framework, which is based on the Energy Act and supervised by the Energy Regulatory Office.

1.1 Pillar of regulation: Act No. 458/2000 Coll., the Energy Act

The Energy Act is the basic legal regulation defining the conditions for doing business and exercising state administration in the energy sectors in the Czech Republic. This comprehensive standard is constantly evolving to reflect market dynamics and implement European directives. The current version of the Act as of January 1, 2025, includes dozens of amendments, underscoring its dynamic nature and the need for constant monitoring.

Latest changes and their impact (Lex OZE III): The key to modernization

One of the most significant recent changes is the amendment to the Energy Act, known as Lex OZE III (Act No. 87/2025 Coll.), which will come into effect on August 1, 2025. This amendment aims to modernize the Czech energy sector and adapt it to new challenges, particularly in the areas of renewable energy sources, flexibility, energy storage, and digitization. Its adoption is crucial, as the Czech Republic was the last EU country to introduce more efficient management of electricity production and consumption and the aggregation of production and consumption.

The key changes brought about by Lex OZE III include:

• Electricity storage and aggregation: The amendment explicitly introduces the operation of large-capacity batteries and strengthens consumer rights. It defines new terms such as flexibility, aggregation, energy storage in the electricity system, and electricity storage facilities. This opens up new opportunities for more efficient management of electricity production and consumption and for pooling production and consumption, which can lead to significant savings and new business models.
• Consumer protection and terms and conditions: Lex OZE III provides customers with an independent electricity and gas price comparison tool, including spot prices, which will make it easy to compare offers. It also requires suppliers to purchase a certain amount of energy in advance for customers with fixed prices (the so-called trader's security index – 70% of the volume) and to inform them of price decreases, not just increases. The amendment also regulates the amount of contractual penalties for early termination of fixed-price contracts, which may now reach a maximum of 40% of the value of the energy not consumed, thereby preventing the charging of disproportionately high amounts.
• Licensing of production facilities up to 100 kW: The amendment stipulates that licenses will no longer be granted for electricity production in facilities up to 100 kW, with certain exceptions. This simplification should support smaller projects and facilitate market entry for smaller players.
• Hydrogen and strategic entities: It introduces a license for the transport of high-purity hydrogen and prohibits the acquisition of influence over an energy-strategic entity without the consent of the ministry. This reflects the growing importance of hydrogen in the energy mix and the need to protect critical infrastructure.

Legislative dynamics: Risk and opportunity for your business

Constant amendments to the Energy Act mean that the legal environment is not static but dynamic. For entrepreneurs, this poses a significant risk of legislative instability. Investors who fail to keep up with current changes may face wasted investments or ineffective solutions. An example of this is when legislation changes between the issuance of a subsidy decision and the signing of a contract, which can lead to the failure of the entire system. Failure to adopt key legislative changes, such as Lex OZE III, could also lead to an outflow of investors abroad, which would slow down the development of modern energy in the Czech Republic.

On the other hand, for those who are prepared and have the right legal advice, these changes represent a significant opportunity. Rapid adaptation to new rules for storage, aggregation, and community energy can lead to significant savings and open the door to new business models.

1.2 Energy Regulatory Office (ERÚ): Your main partner and guardian of the rules

The Energy Regulatory Office (ERÚ) is a key central government body that regulates the energy market in the Czech Republic. Its powers are broad and include licensing, price regulation, compliance monitoring, and dispute resolution.

Types of licenses and fees:

The ERÚ grants licenses for a wide range of activities in the energy sector:

• Production, transmission, distribution, and trade in electricity.
• Production, transport, distribution, storage, and trade in gas.
• Production and distribution of heat energy.
• Market operator activities.

In addition, the ERÚ also grants authorizations for intermediary activities in the energy sector. Administrative fees for granting these authorizations and licenses vary depending on the type and scope of the activity:

• Authorization for intermediary activities: CZK 10,000.
• License for the production of electricity, gas, and heat energy up to an installed capacity of 1 MW, or for the distribution of electricity, gas, and heat energy up to a transmission capacity of 1 MW: CZK 1,000.
• License for electricity transmission, gas transport and gas storage, or for the production of electricity, gas and heat energy with an installed capacity exceeding 1 MW, or for the distribution of electricity, gas and heat energy with a transmission capacity exceeding 1 MW: CZK 10,000.
• License for electricity and gas trading: CZK 100,000.
• Assignment or activation of an identification number (if the applicant has never been assigned an identification number or if it is invalid) is free of charge and may be assigned by the ERÚ upon request for a license.

Conditions for obtaining and maintaining a license: The applicant must meet the financial requirements, which means the ability to financially secure the operation of the activity for which the license is required. Furthermore, there must be no obstacles to the granting of a license, such as a revoked license or the commencement of last resort supply in the last 5 years. The ERÚ is also authorized to recognize business licenses for electricity or gas trading granted by the competent authority of another EU Member State, which is mandatory for companies trading in gas or electricity in the Czech Republic.

1.3 Complexity of the licensing procedure: Barriers to entry and risk for existing players

Obtaining and maintaining a license requires meeting many conditions and submitting specific applications with fees. This is not a simple administrative task and can be daunting for new entities. The complexity and costs of the licensing procedure, including administrative fees and the need to demonstrate financial standing, can constitute a significant barrier to new entrants. For existing license holders, it is crucial to constantly monitor and comply with the conditions in order to avoid penalties or revocation of the license. Any failure to comply with the conditions may lead to the cessation of business.

Overview of key licenses in the energy sector, fees, and relevant authorities

Type of License/Authorization	Competent Authority	Administrative Fee	Key Requirements
Intermediary activity in the energy sector	ERO	CZK 10,000	Professional qualification (until 31/12/2023 possible under Trade License with application by 30/09/2022), Company ID
Electricity/Gas/Heat Production (up to 1 MW)	ERO	CZK 1,000	Financial requirements, Company ID
Electricity/Gas Distribution / Heat Supply (up to 1 MW capacity)	ERO	CZK 1,000	Financial requirements, Company ID
Electricity Transmission / Gas Transport / Gas Storage	ERO	CZK 10,000	Financial requirements, Company ID, gas storage operator certificate
Electricity/Gas/Heat Production (above 1 MW)	ERO	CZK 10,000	Financial requirements, Company ID, state authorization from Ministry of Industry and Trade (>1 MW)
Electricity/Gas Distribution / Heat Supply (above 1 MW capacity)	ERO	CZK 10,000	Financial requirements, Company ID
Electricity/Gas Trading	ERO	CZK 100,000	Financial requirements, Company ID, no barriers (e.g. license revoked in the last 5 years)
Market Operator Activity	ERO	–	Specific conditions
Recognition of Authorization from the EU	ERO	–	Authorization from another EU Member State

 

Note: Assignment/activation of the ID number is free of charge and may be assigned by ERÚ upon request for a license.

2. Contractual relationships in the energy sector: From supply to innovation

The energy sector is interwoven with a complex network of contractual relationships that define the rights and obligations of all market participants. Properly drafted contracts are the foundation for the stable and profitable operation of your company. Without them, you expose yourself to the risk of financial losses, legal disputes, and disruption of supply continuity.

Who can help you?

2.1 Types of contracts in B2B energy

The Energy Act distinguishes between several types of energy market participants and requires careful assessment of which specific contract applies to a given relationship. Here are the key types of contracts you will encounter in B2B energy:

• Electricity/gas supply contracts and associated supply services: These contracts relate to the supply of energy itself. Contracts for associated electricity or gas supply services also include price-regulated services related to transmission and distribution, which are usually billed together. For larger, non-consumer contracts, responsibility for deviations is agreed upon, which is a key difference from associated contracts for households.
• Connection contracts: These contracts define the technical and commercial conditions for connecting your facility (production plant, consumption point) to the electricity or gas network. They include the amount of reserved power, the date and place of connection, and specify the customer's share of the eligible connection costs.
• Contracts for the provision of network services (transmission/distribution): These contracts oblige the transmission or distribution system operator to provide the necessary services and the market participant to pay the price for these services.
• PPA contracts (Power Purchase Agreements): These are long-term contracts for the purchase and sale of (renewable) energy between a producer and a consumer. These contracts are crucial for investors in renewable energy sources, as they ensure long-term financing for projects for producers and advantageous certified electricity for consumers.
• Gas storage contracts: These are concluded between the operator of an underground gas storage facility and the operator of a transmission or distribution system, a gas trader, or an eligible customer.
• Brokerage contracts: These are contracts for the procurement of opportunities to conclude, amend, or terminate a contract for the supply of electricity or gas.
• Other general B2B contracts: In addition to energy-specific contracts, standard commercial contracts such as purchase contracts, contracts for work, business sale contracts, loan agreements, mandate contracts, commission contracts, or commercial agency contracts are also used in the sector.

2.2 What to look out for when concluding contracts

When concluding contracts in the energy sector, caution and detailed legal review are key. Even minor omissions can have far-reaching consequences.

• Written form and requirements: From 2022, energy supply contracts must be in writing and must expressly state whether price changes are permissible or not and how changes will be notified to the customer. In B2B relationships, it is possible to refer to the terms and conditions posted on the website, provided that they were known to the parties or attached to the draft. Always ensure that you have a clear and legally binding agreement.
• Changes to contractual terms and conditions and the right of withdrawal/termination: If the contract is concluded for an indefinite period, the notice period may not exceed 3 months. The customer has the right to withdraw from the contract if they do not agree to the change in the terms and conditions. The Lex OZE III amendment now regulates the amount of the contractual penalty for early termination of a contract with a fixed energy price. The penalty may amount to a maximum of 40% of the value of the electricity or gas not consumed, which is intended to prevent the charging of unreasonably high amounts. From January 1, 2022, the law expressly allows the termination of an obligation under an intermediary contract at any time without penalty and the revocation of the authorization to conclude an energy supply contract without notice. The notice period is 15 days and begins on the first day of the month following the delivery of the notice.
• Risks of unfair commercial practices and door-to-door sales: Although primarily targeted at consumers, B2B clients should be wary of intermediaries. The Czech Trade Inspection Authority (ČOI) has recorded an increase in complaints about contractual penalties charged by intermediaries if the client refuses to accept the selected energy supplier or wishes to withdraw from the contract. Such contracts may show signs of unfair commercial practices or contain unreasonable terms that are disadvantageous to the client.

Shift from reactive to proactive contract management

Experience from the energy crisis and constant amendments to the law (such as Lex OZE III) point to the need for more detailed contractual arrangements, particularly with regard to price fixing and penalties. Standard contracts may no longer be sufficient. Energy companies must move from reactive contract problem solving to proactive management, which includes thorough review, negotiation, and tailored contract drafting. An emphasis on transparency and clear definitions in B2B contracts, including terms and conditions, is key to minimizing future disputes.

3. Risks, penalties, and disputes: How to defend yourself and prevent problems

The energy sector is heavily regulated, and violations of the rules can have serious financial and reputational consequences for companies. The Energy Regulatory Office (ERÚ) is an active market watchdog and does not hesitate to impose heavy fines for non-compliance.

3.1 Most common offenses and penalties

The penalties for violating the Energy Act are significant. For legal entities and sole proprietors, the fine can reach up to CZK 15,000,000. For license holders, fines can reach up to CZK 100,000,000 or 10% of net turnover (for transmission/transport system operators) or CZK 50,000,000 / 1% of turnover (for other license holders).

Most common reasons for fines:

The most common problems dealt with by the ERÚ and for which it imposes fines include incorrect billing and failure to handle complaints. Other issues include failure to comply with fixed prices, demanding payment for services not ordered, late billing, unfair commercial practices, and failure to comply with information obligations. In extreme cases, the ERÚ may revoke an intermediary's license for failure to comply with the conditions for granting a license under the Energy Act. A license is revoked if the holder no longer meets the conditions for its granting or if obstacles to the granting of the license have arisen.

Increased regulation and consumer protection as the main drivers of sanctions

Record fines and their growing volume (a year-on-year increase of almost CZK 7 million in the first half of 2024 compared to 2023) signal an overall trend towards tighter regulation and greater emphasis on consumer protection in the energy sector. This applies not only to compliance with the Energy Act, but also to the Consumer Protection Act. Companies must be extremely careful in their communication, invoicing, and compliance with contractual terms and conditions, otherwise they face high penalties and potentially even the revocation of their license. For B2B clients, this means that it is crucial to have not only legally sound contracts, but also robust internal processes that ensure compliance with regulatory requirements and protect against complaints that could lead to an ERÚ investigation. Legal advice should therefore focus on prevention and compliance.

3.2 Legal disputes in the energy sector

Despite all efforts to prevent them, disputes in the energy sector do arise. It is important to know how to defend yourself in such situations and what options are available for resolution.

Resolving disputes with the ERÚ: The Energy Regulatory Office is the body responsible for out-of-court settlement of consumer disputes in the electricity, gas, and heating sectors. The ERÚ decides disputes between customers and license holders regarding the fulfillment of contractual obligations (supply, distribution), determining the validity or effectiveness of contracts, incorrect rejection of complaints, the amount of advance payments, or the non-existence of contractual penalties. The deadline for issuing a decision in a dispute initiated by a consumer is 90 days, or 120 days in particularly complex cases.

Court disputes: However, the ERÚ does not have jurisdiction to decide on claims for damages, the surrender of unjust enrichment, or compensation for failure to comply with supply quality standards. These claims must be brought before the competent court. ERÚ decisions are subject to review by administrative courts.

Examples of legal disputes from practice:

• Unauthorized distribution: The Supreme Administrative Court (NSS) dealt with a case where PREdistribuce interrupted the supply of electricity due to an "overmarked" circuit breaker with higher power, which it assessed as unauthorized distribution. In February 2025, the NSS ruled that electricity consumption via a circuit breaker with a higher than agreed capacity does not constitute unauthorized distribution for which the operator could interrupt the supply. This ruling is significant for distribution system operators.
• Billing and complaints: The ERÚ is resolving disputes over incorrect billing for gas supplies, where the trader charged prices other than those agreed in the contract. The ERÚ may impose an obligation on the license holder to bill at the correct prices.
• Public procurement during the energy crisis: The Office for the Protection of Competition (ÚOHS) faced criticism for the length of proceedings and retroactive questioning of the unpredictability of circumstances when awarding public contracts for energy during the energy crisis. Case law suggests that the decisions of contracting authorities should be assessed in the context of the actual circumstances, not just formally.
• Subsidies: Disputes may also arise around subsidies, especially if legislation changes between the approval of the subsidy and the implementation of the project, which can lead to inefficient use of funds.

The need for specialized legal representation in regulatory and court proceedings

Energy disputes are often complex and involve both administrative proceedings before the ERÚ and the ÚOHS, as well as civil and administrative courts. This requires in-depth knowledge of both administrative law and the specifics of energy regulation and case law. The length of proceedings and retrospective assessment by the ÚOHS underscore the need for legal certainty and the ability to argue in the context of real market conditions. Companies need lawyers who not only understand the law but also have experience with the practices of the ERÚ and the courts, can communicate effectively with the authorities, and can strategically manage disputes. This includes the ability to anticipate how case law is evolving and how it will affect future cases. A law firm with proven experience in successfully representing clients in these types of disputes builds trust and is a key asset for clients in protecting their business. ARROWS lawyers will represent you in administrative and court proceedings, help minimize risks, and ensure a fair resolution of your disputes.

4. The future of energy: Community energy and new challenges

The energy sector is constantly evolving, bringing with it new operating models that present both opportunities and new legal challenges. Community energy is one of the most significant trends changing the way we approach energy production and consumption.

4.1 Community energy: New opportunities and legal aspects

Community energy is one of the most significant trends in energy, enabling citizens, municipalities, and businesses to jointly produce, share, and consume energy from renewable sources. It is a key step towards energy decentralization, decarbonization, and the prevention of energy poverty.

Legislative framework and electricity sharing:

Community energy is based on European Union directives (in particular Directive 2018/2001 on the promotion of the use of energy from renewable sources and Directive 2019/944 on common rules for the internal market for electricity) and is implemented primarily by amendments to the Energy Act (Lex OZE I and Lex OZE II/III). From August 1, 2024, in theory, nothing will prevent the creation of large-scale, democratically managed community structures. The Lex OZE III amendment strengthens the rights of those who share energy and prohibits discrimination against them. Electricity sharing can be achieved through the active customer model, but for more complex projects, establishing an energy community is a more suitable solution.

Advantages of community energy:

In addition to direct savings, community energy also helps by keeping finances in the local region, thereby supporting the local economy. The creation of energy communities leads to personal involvement and increased motivation of individuals in energy projects, which can change citizens' attitudes towards modern energy.

Risks and unanswered questions:

Despite the advantages and legislative progress, there are significant questions and obstacles:

• Time crisis: The implementation of EU directives was supposed to be completed by the end of 2020 or mid-2021, but the legislative process in the Czech Republic is dragging on, creating a time crisis.
• High initial investment costs: The establishment and operation of an energy community requires high initial infrastructure costs (solar panels, battery storage, smart grids). The return on some investments can be long (10–20 years), which may discourage some interested parties. Financing often depends on subsidies and grants.
• Administrative and legislative barriers: Effective legislation for community energy is still evolving and administrative barriers need to be overcome.
• Technical complexity and system management: These require expert technical management (monitoring of production, consumption, energy storage) and support from external IT, energy, and economics experts is desirable.
• Lack of unity within the community and conflicts: Energy communities are based on collective decision-making, which can be complex. Different members may have different priorities (e.g., lower prices vs. an ecological approach vs. profitability).
• Definition of energy communities: There are still some questions about their exact definitions and limits.

Case studies and pilot projects: There are model examples and pilot projects (e.g., in Litultovice) that test energy sharing in apartment buildings, businesses, and municipalities and demonstrate the potential for savings and the use of renewable energy sources. These studies demonstrate how consumption can be optimized and the use of locally produced energy increased.

The gap between legislative intent and practical implementation

Despite legislative progress, there is a significant gap between the theoretical possibilities of community energy and its practical implementation. High investment costs, administrative complexity, and technical challenges are hindering wider development. This creates a need for legal advice that not only interprets the law but also helps with the practical setting up of contractual relationships, resolving disputes within communities, and ensuring compliance with subsidy programs.

4.2 Legislative instability and its impact on investors

Rapid and often unpredictable changes in energy law, whether as a result of European directives or in response to crises, create considerable uncertainty for investors.

Impact on investors:

Failure to adopt key legislative changes, such as Lex OZE III, would lead to an outflow of investors abroad, even though investments in storage and flexibility could bring tens of billions of crowns to the Czech Republic, for example in battery systems that help stabilize electricity prices. If not resolved, negative electricity prices could discourage investors from investing in new renewable energy sources, slowing down the transition to a low-carbon economy.

Subsidy issues:

The state budget for 2025 does not yet cover all the requirements for supporting renewable energy sources, even though green electricity producers are entitled to this money by law. The Ministry of Industry and Trade and the ERÚ warn that the volume of subsidies will have to increase due to lower electricity prices, which creates uncertainty for producers. In addition, the current subsidy scheme may lead to inefficient use of funds and "technological relics" if legislative developments are not reflected in the final solutions. The process between the issuance of a subsidy decision and the signing of a contract can take up to a year and a half, which is long enough for legislation to change.

The importance of proactive legislative monitoring and strategic planning

The dynamic legislative environment makes proactive monitoring and strategic planning absolutely essential for investors in the energy sector. Relying solely on current regulations is risky; anticipating future changes is key to the viability of projects. This means that companies need legal advice that not only informs them about the current situation, but also helps them anticipate future developments and prepare for them. A law firm that can provide such proactive and forward-looking legal advice is a key partner for clients in the energy sector, helping them minimize risks and capitalize on new opportunities.

Partner with ARROWS for your energy future

The energy sector in the Czech Republic is a fascinating but also extremely complex and dynamic field that places high demands on legal knowledge and strategic planning. As we have shown, from basic licensing modules to complex contractual relationships, to the threat of heavy fines and the challenges of community energy, legal certainty is an indispensable pillar for the stable and successful operation of your company.

Constant legislative changes bring new opportunities, but also require rapid adaptation and a proactive approach. The risks associated with non-compliance and unfair practices are real and can have fatal consequences for your business. Timely and qualified legal assistance is not only a necessity, but a strategic investment that protects your interests, minimizes financial losses, and builds trust.

ARROWS lawyers are your reliable partner in this energy maze. Thanks to our in-depth knowledge, many years of experience, and proactive approach, we can help you:

• Obtain and maintain the necessary licenses without unnecessary delays.
• Establish robust and legally sound contractual relationships that protect your investments and minimize risks.
• Effectively prevent disputes and penalties and, if necessary, represent you in administrative and court proceedings.
• Take advantage of the opportunities offered by community energy and new trends and adapt to legislative changes.

Don't let the complexity of energy law catch you off guard. Trust the experts at ARROWS, who understand your needs and can provide you with not only legal advice but also a strategic partner for your energy future.

Navigating the energy maze – Why is legal certainty key?

The energy sector in the Czech Republic has undergone a dynamic and profound transformation in recent years. From an era of large, centralized sources, often dependent on fossil fuels, we are moving towards decentralization, massive development of renewable sources, and an active role for consumers, who are becoming an integral part of the energy market. This revolution brings enormous opportunities for innovation, savings, and sustainability, but at the same time creates a complex legal maze in which it is easy to get lost without a deep understanding. For any entrepreneur, investor, or local government that wants to succeed in the energy sector, it is crucial to have a solid legal foundation and a clear strategy.

Without a deep understanding of the legal modules that govern the functioning of energy companies, you expose yourself to significant risks. These range from high financial penalties and loss of licenses to wasted investments and damage to your reputation. The aim of this article is to guide you through this complex legal environment, unravel its complexities, and show how legal certainty can be your greatest asset, enabling you not only to survive but also to thrive in this rapidly changing industry.

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