Guest Blog (V.): Approval of Solar Tax stands for a bitter End of Czech Solar Boom

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On December 10, 2010 the Czech President Vaclav Klaus approved a retroactive solar tax for solar power plants in the Czech Republic in spite of fears of possible arbitrages and protests by several members of European Photovoltaics Association (EPIA).

Difficult decision

The Czech president was aware of the fact that the solar tax would put the Czech Republic into troubles and risks related to solar arbitrages and legal disputes against the country. Just two weeks ago Klaus expressed his doubts in terms of the solar taxation.

He was also worried that without the approval of the solar tax, the prices of electricity could be increased dramatically in 2011 for the final consumers. However, there was another reason why Klaus approved the solar tax. Klaus is notorious for his hostile attitude to renewables of any kind. As a result, it was not surprising that he gave the consent to the introduction of the solar tax in the Czech Republic.

Bad Christmas present for solar investors

The new solar legislation will become fully effective from from January 2011. It will be a really bad Christmas present to majority of solar investors in the Czech Republic.

In fact the original FiT revenues generated by the investors will be largely and retroactively reduced. The investors who commissioned plants with an installed capacity over 30kWp in 2009 and 2010 will have to pay a retroactive solar tax.

It will vary from 26 percent (FIT for sold power to grid operators) to 28 percent (so-called Green Bonus payments for electricity produced and consumed in the consumption place) and will be valid for three years (2011 – 2013).

For many Czech small and mid-sized investors it will have a detrimental effect on their solar investments. In many cases they will not be able to re-finance their loans. As a result many of them will have to go bankrupt or will be forced to sell their assets at a big discount.

Protests of EPIA

At the beginning of December 2010 (before Klaus ´s decision on the solar tax), members of the European Photovoltaics Industry Association (EPIA) protested agains the solar tax to be introduced in the Czech Republic. Such actions will basically shatter investor confidence, added EPIA in the open letter sent to the European Commission, Czech authorities and to all Ministers of Industry in the EU last week.

EPIA has already refuted the Czech Government’s actions, stressing the retroactivity fundamentally changes the conditions guaranteed to the operators of solar power plants already on the grid in 2009 and 2010. This decision will clearly break their trust in the renewable technology as a reliable investment and in the reliability of Czech Republic as a safe place for investment.

In the public interest- indeed?

However, the letter of EPIA had no impact on Czech officials and politicians. The speaker of MPO (Ministry of Industry and Trade) responded to EPIA’s letter claiming that they had to take such action in order to prevent electricity prices from rising next year, as a result of the solar boom. According to him, such legislative measures are in the public interest (protection against hook in the electricity prices) that has to be preferred (damaged solar investments).

Nevertheless, the reality is different, as without any government intervention, the electricity prices would go up only by three to six percent, as a result of the solar boom as based on the new price lists issued by the energy distribution companies E.ON and CEZ, which have decreased the prices from 2011 so that the impact of PV is negligible.

These companies have waged an intensive media campaign since February 2010 with a clear objective to scare the Czech public (deliberately to change their view) that prices will be increased by well over 20 percent only because of the amount of PV installations. By doing so, they have created a new “PV ghost” which is to blame for high prices of electricity.

It is strange that in 2006-2008 (where there were almost no PV plants in the country) the prices of electricity for households went up by 30%. Surprisingly nobody, from Czech politicians or officials were looking for a solution for such a dramatic price increase. Apparently it was also against the public interest but politicians were absolutely silent on this matter. The reason is that it was in the interest of the state-owned utility CEZ – monopoly producer of electricity in the country.

Will EU intervene?

Many investors hope the European Commission will soon intervene against such actions as this is seen as their last chance that Czech politicians will change their opinion. Many investors are hoping for EU intervention but without such actions the Czech Republic will be facing the biggest amount of international arbitrages, which could result in the loss of rating. Arbitrages and law suits seem to be the only means of protection of the interests of the solar investors.

Bonanza for Solar Lawyers vs. bitter end of Czech solar boom

All major legal offices have lately been organizing special seminars and presentations for solar investors. The lawyers have a nose for the biggest legal business of the century – solar arbitrages against the Czech Republic.

The odds are high that lawyers will be very successful in the arbitrages since the new solar tax legislation is not in keeping with both EU and Czech Republic’s legislation. This is good news not only for the lawyers, but also for their clients (primarily foreign solar investors).

The oncoming solar arbitrages look like a time bomb which is ticking and is ready to explode at the beginning of 2011, resulting in a new solar bonanza for the lawyers.

The results of the arbitrages will impair the credibility of the Czech Republic (a decrease of its rating and amount of foreign direct investments) in the near future, a bitter consequnce of the Czech Republic‘s instigated solar boom.

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