Czech solar energy industry faced with retroactive change in support

Czech politicians have created conditions for investing in green technologies that are similar to conditions in other countries in the European Union. Despite this, the Czech Republic has become the only country that has decided to hamper the solar energy industry with a retroactive tax.

As part of an amendment to the Renewable Energy Act intended to reduce feed-in tariffs for solar energy, representatives have adopted a retroactive 26-28 percent tax that all owners of 30 kW and above solar energy plants put into operation in 2009 and 2010 must pay to the state.

“Retroactively changing the law and disrupting guaranteed investment returns and equality before the law may create a dangerous precedent which subsequent governments may abuse in other business sectors or for financial products intended for the public. It will not matter that the Constitutional Court’s ruling was made in regards to solar energy,” says Pavel Šich, the director of the Alliance for Energy Independence.

Those introducing the bill have been influenced by CEZ energy group’s negative campaign against solar power plants. Martin Roman, the former general director of CEZ (who is currently suspected of awarding overpriced contracts to “friendly” companies), warned of up to a 22 percent increase in the price of electric energy as a result of growth in fixed price photovoltaic energy. At the same time CEZ has hushed up the fact that they purchased solar power plants that together have an output of more than 120 mW; these purchases were funded in part by loans from the European Investment Bank. Some of these projects cost double the price of the average solar power plant.

This tax however does not take into account differing project expenses in 2009 and 2010, nor differing investment costs based on whether the power plant is located on land or on rooftops. Paradoxically, this blanket tax most affects investors who have made efforts to incorporate cutting edge technology, including highly efficient panels, inverters and transformers.

Constitutional Court upholds the tax
On May 16 the Constitutional Court denied the objections of senators to the special tax on 30 kW and above solar power plants constructed in 2009 and 2010 (also known as the solar tax). This group of senators objected as they considered such a tax to break faith in the state’s actions, decisions and laws.
Solar energy investors have only two ways to protect their investments. Foreign companies may get back promised funds through arbitration. Czech companies may protect themselves in court, but only if the return period exceeds the state guaranteed fifteen years as a result of this tax.
It seems that this intervention may make investing in clean technology an unstable affair. The Czech energy sector is dependent on fossil fuels and coal. Together these two sources produce almost 90 percent of electricity in the Czech Republic. Modern, renewable energy must fight for its place in the sun against the disinterest of politicians. For example, President Klaus vetoed a bill supporting renewable energy, which was then overridden by vote of the Chamber of Deputies. Prime Minister Neèas has been drumming up support for nuclear energy in the EU. The head of the Energy Regulatory Office has called for a stop to funding all renewable energy sources to go into effect in 2014; she has done so even though she lacks legal authority to make such a decision.

Martin Sedlák from the Alliance for Energy Independence describes the situation in the energy sector: “Support for renewable energy sources helped new market sectors develop in a market that had up that point been ruled by power company monopolies. Clearly, this support must be eventually gradually eliminated, but only for future projects.

A stable environment would ensure clean energy growth, through which we will be able to lower our independence on fossil fuels, clean the air of harmful pollutants, and in the long-run reduce the high price of electricity. The solar tax will turn the Czech Republic in to a living history museum of energy”.

The state has not dealt with any other regulated components contributing to the price of electricity
Since proponents of this special “tax” on solar power plants use the argument that they are trying to avoid increases in electricity prices, then it is surprising that they have not made any attempts to intervene in the price of electricity distribution.
Data from the Energy Regulatory Office indicate that support for renewable energy sources is not the most expensive item contributing to overall electricity rates. In 2011 support for all types of renewable resources, including cogeneration and support for cofiring wood chips and brown coal, made up 10.4 percent of total electricity costs. This is while, according the very same Energy Regulatory Office data, the “line” owners (E.ON, CEZ and PRE depending on the region) eat up 35.6 percent of the total cost for distribution. In Germany distribution costs make up only 18 percent of the price of electricity.

Retroactive changes in business conditions have met with public resistance:
Only 9 percent of people think that the government should be allowed to retroactively change conditions for example by changing subsidy rules. Nearly 60 percent of the Czech population is directly against such changes. These are the findings of a survey that the Alliance for Energy Independence had the SCaS Agency conduct before the Constitutional Court’s ruling.

The ruling to uphold the solar tax will have negative impacts on the business atmosphere in at least one industry, if not more in the future
It lowers the promised returns on generated electricity guaranteed by the Energy Regulatory Office’s Price Decision, and the fact that is has been upheld has impacted the legitimate expectations of affected businesses.
The blanket solar tax applies to projects from 2009 and 2010, although it does not take into account differing investment costs, nor the location of solar power plants.
The state is legally bound by the Renewable Energy Act to guarantee returns for at least fifteen years. Investors thus have a right to this support and this right arises on the date of bringing solar power plants into operation. The law however now limits the rights of investors and also limits the guaranteed returns, and thus a retroactive change in the legal system has been made.

The Alliance for Energy Independence (hereinafter the Alliance) is a non-governmental organization that connects renewable energy producers and energy efficiency experts with universities and the public sphere. The Alliance’s aim is to maximize the utilization of clean energy sources in combination with highly efficient technology. Our activities are focused on awareness raising, promoting modern trends and education. The Alliance endeavors to gradually transform the Czech economy so that it is driven by an independent, clean, and, when suitable, local energy system.