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As reported in Solar Novus Today - www.solarnovus.com

Czech Solar: A lesson in what not to do

Written by Andrew Williams | 27 April 2011

Throughout 2009 and 2010 the Czech Republic’s solar PV sector experienced
unprecedented rates of growth. During this period, the installed capacity of solar
resources in the country grew from a modest 66 MW at the end of 2008 to 463 MW at
the end of 2009 - and exploded to 1820 MW by the end of 2010.

This rapid expansion arose largely as a result of generous feed-in tariffs (FiTS), which
last year catapulted the Republic to third position in the European solar power league
table, behind only Germany and Italy in terms of newly-installed capacity.

Generous FiTs catapulted the country to third place behind Germany and
Italy in terms of newly installed solar.

However, at the current rate of 12.25 Czech Korunas per kilowatt hour (currently 0.5 Euros), the FiT is about ten times the
price of conventional power, and the boom in the solar sector has meant that the subsidized rates are beginning to filter into
the retail price for electricity – raising fears of sharp increases in the price paid by Czech consumers.

Last month, these concerns prompted the Czech government to introduce a new law granting the ERU, the country’s solar
energy regulator, the power to cut the FiTs that distributors must award installations as of next year, when it determines that
the return on investment into solar plants falls below 11 years. The move follows an earlier controversial decision to impose a
retrospective 26% 'solar tax' on the income generated from ground-mounted solar installations with installed capacities over
30kW.

“These tariffs are finally paid by electricity rate payers. The Czech government wants to recover some of the money paid to
the solar investors under the earlier agreed tariffs,” says Henning Wicht, Senior Director and Principal Analyst - Photovoltaics
at iSuppli.

Furious response

Last month the Czech government gave the ERU the power to cut the FiTs.

The drastic measures have incensed many within the industry and stirred up a veritable hornet’s nest of opposition. A number
of disgruntled private sector investors, from as far afield as the Netherlands, Cyprus, Belgium and Switzerland, are lining up to
launch legal proceedings against the Czech authorities.

“The Czech government’s reactions are a nightmare for the government and the solar industry,” says Wicht.

“The tax on solar income, as well as no further funding for systems over 30kW does not help to build a sustainable solar
industry sector,” he adds.

The Czech position has also been heavily criticised by European Union officials, with both EU Energy Commissioner Günther
Oettinger and EU Commissioner for Climate Action Connie Hedegaard expressing serious concern at the ‘retroactive’ nature of

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the measures.

Marek Hatlapatka, Head of Research at Czech brokerage firm Cyrrus, also singles out this ‘ex-post’ change in the rules as a
significant cause for concern.

“No wonder we can expect legal actions against the Czech republic from PV investors. I view this situation as [further]
evidence of the controversy of the policy of subsidies generally,” he explains.

“The truth is that investors had exceptionally good conditions last year that are clearly not consistent with usual market
conditions. But it is not the fault of investors, they have just taken the opportunity,” he adds.

So, if the Czech government's strategy is not the best way to prevent the costs of subsidies being passed on to consumers -
what better alternatives might be available to them? According to Hatlapatka, the Czech authorities should look to themselves
to provide a workable solution.

“Government should find the resources [on its] own even in the situation of tight budgets,” he argues.

For Wicht, the best answer would lie in a greater degree of foresight amongst officials. “Future tariffs have to be more flexible
[in] anticipating the cost reduction of solar,” he says.

Abandon ship?

Against this backdrop of widespread frustration and uncertainty there are now genuine concerns that prospective solar
developers will decrease investment, or even abandon the Czech Republic, following the shift in government policy.

“The installation business is [increasingly] an international business [which] quickly moves from one hot spot to the next. [Up]
until December 2010 the Czech Republic has been a hot spot, now developers will move away,” says Wicht.

Hatlapatka paints an equally gloomy picture of the mid-term prospects for the sector – arguing that PV investments in the
Czech republic are currently ‘almost dead.’

“New subsidized prices and rules are much less favourable and investors now know that they have to calculate an extra risk
premium in the Czech republic connected with the unpredictable behaviour of the Czech state,” he says.

“[M]y guess is that installed capacity will stay just over 2GW for the years to come and investors will probably shift to some
other segment of the energy industry,” he adds.

As governments across Europe and further afield continue to tighten their belts in response to budgetary constraints, it is
perhaps likely that the Czech experience will become a salutary lesson in how not to manage solar energy policy.

About the Author

Andrew Williams is a freelance writer based in the UK. He has an M.Sc. in Sustainability and Environmental Policy and writes
about green technology and renewable energy for a variety of publications including The Guardian and CSP Today.

Other readers found these related stories of interest:

1. Global Energy Overview

2. Spain Reducing Support for Renewables
3. Spain Plans to Cut Prices for Solar
4. German Bundestag and Bundesrat Enact FiT Cuts
5. The Role of the FiT: Boosting Solar Energy
6. French Feed-in-Tariff Rates Set for Photovoltaic Installations

Labels: Europe, Feed-In Tariffs, Government Support

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