Developments in Czech Renewables
The Czech renewable energy regulation went through a phase of intensive developments in the past two years. This was both in the sphere of new legislation as well as in the area of litigation against possibly discriminatory behaviour of the Czech government.
Czech Constitutional Court Backs State Over Photovoltaic Clampdown
In 2005, the Czech Republic introduced legislation aimed at encouraging power generation from renewable sources. Act on the Promotion of Electricity Generation from Renewable Sources set the legislative framework for the provision of support. The system of support was designed to guarantee a return on investments in photovoltaic power plants within 15 years.
The falling prices of solar panels and other equipment, along with generous state incentives, saw investors’ profits soar in subsequent years. As a result, the Czech Republic became the fourth largest EU country in terms of newly-installed photovoltaic capacity in 2010. The enormous expansion in the number of photovoltaic power plants, however, threatened to drive electricity prices up by over 10 percent.
In January 2011, the Czech Republic introduced the solar tax on revenue for all photovoltaic plants made up of ground-mounted power panels with a capacity of over 30 kW in the Czech Republic in 2009 and 2010 in order to put a brake on the rapid development of the photovoltaic industry. The tax rates are 26 percent and 28 percent – depending on the method of state support. The tax is valid until 2013. The amended law further imposed gift taxes on carbon credits acquired free of charge and abolished tax relief granted to renewable energy generators. The new measures have been widely criticised, in particular by investors in photovoltaic plants who, due to the legal changes, have lost considerable profits.
In March 2011, a group of senators brought the issue to the Constitutional Court, complaining that the new legislation infringes the property rights of investors and their right to engage freely in business activities (as guaranteed by the Czech Charter of Fundamental Rights and Freedoms) and that the new norms are retroactive.
In a recent ruling, the Constitutional Court rejected the arguments and confirmed the validity of the adopted measures. The court stated that Parliament did not violate constitutional principles and that it has a right to restrict state support for photovoltaic power plants if the situation changes significantly. In the court’s view, the principle of legal certainty does not totally exclude the possibility of subsequent legal amendments. However, the judges stressed that they could not rule out any future intervention on their part should investors make complaints in individual cases. In particular, in cases involving small producers who financed plants with bank loans on which they have to pay high interest.
The Constitutional Court’s decision will not prevent any international arbitration proceedings that foreign photovoltaic power investors are entitled to launch against the Czech Republic under bilateral investment protection treaties.
New Czech Renewables Law
As a result of the transposition of EU Directive (2009/28/EC) on the use of the renewable energy sources, the Czech Parliament enacted on 31 May 2012 new legislation on renewables ‑ the Act on Promoted Sources of Energy (the ”New Renewables Act”). The New Renewables Act (which comes into force on 1 January 2013) covers not only the promotion of renewable electricity and heat and biomethane but also regulates the support of secondary energy sources and combined heat and power (together “Renewables”).
The New Renewables Act is based on the principle of climate and environmental protection and as such promotes the use of Renewables. The New Renewables Act aims to increase continuously the share of Renewables in primary energy consumption, with a goal of a 13 percent share in the Czech Republic’s gross energy consumption by the end of 2020.
The New Renewables Act introduces (i) a new model of purchasing electricity produced from Renewables and (ii) a new (market oriented) method of electricity support payment, which will be now settled by the market operator. In addition, the electricity support payment will primarily take the form of “green premiums” rather than “fixed purchase prices”. Electricity support payment in the form of “fixed purchase prices” will apply only to electricity generators with a small installed capacity.
Furthermore, electricity support payments in the form of “fixed purchase prices” will be paid to power producers through the distribution system operators or the transmission system operators. Distribution system operators and transmission system operators will subsequently be compensated for any difference between market price and fixed purchase price through the market operator. On the other hand, electricity support payments in the form of “green premiums” will be paid directly to power producers by the market operator from a special bank account. The New Renewables Act also imposes a solar tax (as did the legislation that it replaced).
The greatest contribution of the New Renewables Act; however, is reflected in the new principle of unifying support for all promoted energy sources (renewable sources, secondary sources and combined heat and power) and the concentration of their legal regulation in one act.
As required by the Directive, the New Renewables Act stipulates the obligation on the part of the Ministry of Industry and Trade to introduce a “National Allocation Plan”. The National Allocation Plan will allow the government to set more flexibly and effectively the extent of any support and the sources that qualify for such support. As a result, the National Action Plan can be amended on the basis of the current needs of the Czech government. Therefore, the real contribution and effect of the New Renewables Act will depend on implemented decrees and the updates to the National Allocation Plan.
Kamil Blažekis a Partner based in Prague, leads Kinstellar’s Czech Energy & Utilities practice and is the firm-wide head of the Projects and Infrastructure practice. He is a Czech lawyer with over 16 years of experience on transactions in Central Europe, CIS and China. He specialises in corporate law, energy law, public regulatory law and project finance law. He has advised many international energy companies in connection with their activities in the region, especially in the areas of gas, electricity, and energy trading. Kamil is a regular speaker at various local and international energy conferences. He is the chairman of the Czech Association for Foreign Investment and a member of the Czech Association of Energy Managers and of the Czech Nuclear Association. Kamil speaks Czech, English, German and Russian.
Kamil can be contacted by calling +420 221 622 160 or alternatively via email at firstname.lastname@example.org.