*2.1. Power Sector and Market Characteristics*

The transformation of the power sector in some countries is mainly concerned with increasing the share of renewable energy in total energy consumption, which is mostly taking place in European Union countries. This transformation of the sector is driven by EU policy objectives and affects both the power sector and the functioning of the energy market. The directions and pace of changes vary between the EU countries. The biggest challenges are faced by countries where the share of energy produced from coal is the highest. Such countries include Poland and the Czech Republic, which have different amounts of energy production from coal and declare different energy policies.

Poland declares its support for mining and the use of coal, especially because changing the fuel mix would require huge expenditure. The reason would not only be the need for new technologies, but also the necessity to cope with the general transformation of the economy and its social effects. At the same time, energy security must be ensured. The entire transformation should therefore be based primarily on the modernization of existing coal-fired power plants (where cost-effective), resulting in greater efficiency and cost savings. Moreover, the use of renewable energy sources is expected to increase, although this type of energy is not significantly used in Poland [6]. Achieving the coal reduction target will be a challenge, though studies undertaken sugges<sup>t</sup> that it should be achievable [7]. However, Poland's final energy mix will depend heavily on the impact of various environmental policy factors on the energy industry [8].

The Czech Republic is currently an exporter of electricity and is reported to be the seventh-largest exporter of electricity in the last decade. However, unlike Poland, the energy policy update enforces a clearer shift away from coal, also taking into account the potential social and economic impacts [9]. In terms of electricity production, an important role in the replacement of coal will be played, especially by the greater use of RES and nuclear energy. In the field of heating, this will be the use of natural gas [10,11].

However, the plans to move away from coal are probably too ambitious. Replacing coal with nuclear power has become increasingly problematic in recent years. Decisions on the construction of new units are being delayed or cancelled, and the global construction of nuclear power plants is running behind schedule. The commissioning of some new units is planned just before the official end of life of the current units [12].

There is also a relatively high level of opposition to the construction of reservoirs with hydroelectric power plants (primarily for water supply) and wind power plants. Similarly, the landscape conditions are not entirely ideal for these sources to be used to a greater extent in the Czech Republic, especially for hydropower plants [13]. The greater development of RES is undoubtedly hindered by the reduction in state aid [14] and contradictory public opinion regarding these resources [15].

The whole energy situation in both countries is extremely problematic and there is potential talk of instability of the electricity grid in the whole region [9]. In principle, it is possible to expect a scenario in which the slow reduction in coal use leads to an increase in energy prices (due to the purchase of emission allowances, the maintenance of a strategic reserve, or the import of coal) or a scenario in which there is a shortage of resources for electricity and heat production. The transformation of energy production must therefore go hand in hand with the transformation of the electricity market. Given that there is a certain similarity between the Czech and Polish energy markets [16], it can be assumed that the development and transformation in both markets could follow a similar pattern.

The key is the creation of a dual-energy market, where, in addition to buying and selling the physical electricity consumed, the readiness to supply energy is also purchased to ensure energy security. This is because it is necessary to hold a strategic reserve in conventional sources in the case of outages or the instability of electricity supply from RES (problems in the case of no wind or cloudy skies). However, this solution does not correspond to the idea of green electricity, is economically expensive, and is also not potentially feasible where there are not enough energy sources available (e.g., because they have been decommissioned due to high emissions). In this context, the responsibility for the stability of supply is beginning to shift much more from the manufacturers and distributors to the customers themselves. An important role should be played here by the DSR (demand-side response) service to reduce energy consumption on the customer's side, without which ambitious energy goals will not be achieved [17].
