PV wipeout?

With the most generous FITs in Europe at 12.25 Czech crowns for PV systems under 30 kilowatts peak and 12.15 crowns for installations over (currently the only distinction between project sizes), the Czech Republic successfully positioned itself as a lucrative land for investors and project developers alike. ?Decreasing installation prices, a 40 percent drop in module costs, and an attractive return on investment (ROI) – bigger installations currently reap “ten percent or more” ROI – in addition to the economic crisis, saw a high level of PV investment flood into the country in 2009; something that was simply not expected.

As a result, 400 megawatts of PV was installed in Czech last year, which “very quickly became too much,” according to Stefan de Haan, Photovoltaics Analyst at research company iSuppli. He tells pv magazine, “The reason was that they [the government] hadn’t adjusted their FIT system quickly enough to compensate for the system price drops.” Consequently, the market became “almost over subsidized” in 2009, he says.

Trouble brewing

This “rush” to install PV in the country continued into 2010. As a result, František Smolka, President of the Czech Photovoltaics Association says that a new rule was introduced in January, whereby in addition to the requisite “reservation agreement” needed for PV plants, developers were now required to obtain a contract explicitly stating that the plant would be connected to the electricity grid. Then, in February, the Czech energy regulatory office, Energetický regula?ní ú?ad (ERU), issued a moratorium in February, which stopped new permits from being granted.

“Until then,” explains de Haan, “something like three gigawatts had piled up in the pipeline – much of that will be installed nevertheless under the current FITs, but they stopped the permits for connecting installations to the grid, so a lot of the projects now in the pipeline will not be installed.”

Retroactive solar tax

According to the latest news, the Czech lower house approved a bill last Friday (October 29), which is seeking to impose a retroactive 26 percent solar tax. Jaroslav Dorda, an independent solar analyst and consultant, has said that this “brand-new (unique within EU)” solar tax will be imposed on income generated from ground-mounted solar installations with an installed capacity of over 30 kW, in order to recycle the proceeds and to curb retail power price inflation at 5.5 percent.

He goes on to say, “This solar tax will be retroactively applied to all ground-mounted PV installations in question built in 2009 – 2010 in the Czech Republic. Basically, it means a decrease of purchase prices of solar energy (FIT) that were supposed to be guaranteed to investors for 20 years by the Czech government.” Consequently, he says, “This unexpected and indeed controversial measure of the Czech government has already resulted in a cancellation of many large scale solar installations in the country. All investors are very anxious at the moment.”

Prices slashed

Although Czech will have to wait until mid-November to discover the final outcome of the government’s proposals, it is clear that PV systems over 30 kWs in size will no longer be supported by a FIT.

And, says de Haan, if, as was reported back in September, a cap of six Czech crowns is introduced for the smaller residential systems, then a system price of 2 to 2.2 Euros per watt would be necessary. “It is not completely out of reach,” he states, “but this is the price region we envision for Germany for large systems for next year. So for smaller systems in the Czech Republic, where prices are a bit higher, this is a bit low, and it will mean then that even the residential segment is right now not really attractive. But, once prices come down further, perhaps in another year or so, of course it could mean that this segment comes back.” He adds that the country should see around 650 megawatts of installations realized this year, with predictions of between another 100 to 150 megawatts next year.

Reeling

However, speaking to industry representatives, the outlook is not so bright. According to Smolka, the country could see supported annual growth of just 4.5 megawatts a year until 2020, which would mean “liquidation” of the sector. He explains, “For PV energy their [the government’s] estimation is at the end of 2010, we will have 1,650 MW of PV plants – in their opinion a very high figure – which can somehow jeopardize Czech electricity prices. Therefore, they decided that they will lower annual growth to 4.5 MW per year for the next 10 years. This means for 2020 we should be slightly below 1,700 MW of PV plants.

“Right now this industry sector employs 6,000 people – if the sector will really only be allowed to implement five MW – this is practically liquidation of the sector, because who will make business? If the cap is put in place, it will not be good news for the employment statistics that are, according to the Organisation for Economic Co-operation and Development, still reeling from the 2008/2009 financial crisis, which reportedly saw the largest one quarter increase in unemployment since the early 1990s.

Against renewables

This 4.5 MW figure has reportedly come from the government’s National Action Plan, which has been described to pv magazine as being “against renewables”. The plan – due to be submitted to the European Union (EU) by the end of last month – has been “understood completely wrongly” by the government, says a spokesperson for the Czech PV Association, ?eská fotovoltaická pr?myslová asociace (CZEPHO). As a result, instead of providing a framework for the development of green energy, it has effectively laid the groundwork for “limiting” its implementation.

The spokesperson states, “This action plan should just be a strategic document, which will say (…) how Czech will proceed to promote renewable energy. Unfortunately, it was understood totally wrongly and doesn’t say how the measures will proceed in the long-term perspective to promote these resources, but only how to achieve the goal of 13 percent engagement by 2020.

“The other thing is that unfortunately this document is made so wrongly that it won’t allow the country to achieve this engagement towards the EU and that’s because there are goals for different renewable sources, which should be achieved every year: these goals are at the same time, limits. So in case one renewable source, for example wind, achieved a limit one year, there will be no support for wind the next year.”

Uncertainty

How did Czech, which until this year was a promising PV prospect, get itself into such a sticky situation? According to Peter Klimek of Fronious, the government is trying to find “somebody who is guilty” for the rising electricity prices and PV has become the scapegoat. According to ERU, Czech electricity prices for households have been steadily increasing since 2000 (74.5 percent), but they are still below the European averages at 0.116 euro cents per kilowatt hour (kWh), based on a consumption of 3,500 kWh/year.

Klimek says that although the prices are not exclusively caused by renewables, they are an easy target in the public sphere for persuading people they are the reason why costs are so high. “This was done,” says Klimek, “to convince people that nuclear power is better and then they can continue with the traditional sources of electricity.”

Not only that, but Smolka says that since last August, a smear campaign against PV has been launched in the media by the traditional energy companies, aimed at discrediting the industry. “I think there is a panic,” adds Klimek. “Everybody’s talking about PV at the moment. If you open a magazine or newspaper, there is an article with headlines referring to the fact PV’s going to increase the prices of electricity.” Dorda adds, “The politicians are keen on punishing ‘so-called solar barons’ (a popular nickname, which mass media use, for operators of PV systems over 30 kWp), which are to be blamed for a possible increase in electricity prices from 2011.”

Lacking

Furthermore, a lack of regulation on the part of the government meant ground-mounted installations were heavily invested in, rather than rooftop systems, which, as the industry itself recognizes, have contributed to rising electricity prices. “The problem is this system now,” explains de Haan, “is for the benefit of investors – mainly foreign – and so the public opinion in Czech is very much against PV, because it’s the money of the electricity consumers that is going into the pockets of rich investors more or less – that is the way it is viewed. We saw in 2009 that 90 percent of the installations were ground installations, so it is not yet the private and residential sector that is benefiting from these subsidies.”

Strange

Electricity generation company CEZ, which produces around 73 percent of traditional electricity to the country (and has reportedly played a heavy role in the negative media campaign), is also a major player when it comes to ground mounted PV installations. In contrast to other ground-mounted players on the market, which, on average, install projects of around two megawatts, CEZ realizes projects of “between 30 and 70 megawatts”.

The spokesperson for the PV association tells pv magazine, “The state says the main problem is the impact of renewable energy sources on the price for end users – we don’t understand why it allows [CEZ to] invest so much in PV. Their projects are the biggest on the market (…) We don’t understand why [the government] doesn’t stop these projects and why they are finished. It is strange.”

However, the proposed tariff cuts are expected to favor residential installations, which would point the sector in the right direction. That is, if the image of PV can be repaired and if the legislation currently in place is relaxed. As Smolka explains, it is very difficult for private customers to install rooftop systems, because if even one panel is installed, the customer is then considered to be running a business and, as such, is expected to produce official accounts. When asked if he believes the legislation will be altered to make it less complicated, he states, “It will be nice if the government will make it easier, but I don’t think so.”

Investment

With the uncertainty surrounding the industry, what is the current investment situation like? Are foreign investors getting cold feet? And, is there enough of a home market to support the development of the industry without outside financing? According to de Haan, investors are becoming concerned. “They do not see Czech as a major market for next year, that’s for sure. They will look for other markets, like Italy or Bulgaria.”

Dorda also believes the investment situation is dire. He explains, “According to some bankers I spoke to, there will be many defaults as many solar investors cannot survive an imposition of the solar tax.” CZEPHO is of the same opinion. “We are persuaded that over 50 percent of all large scale installation will go bankrupt as a result of the new solar tax,” decleared Jan Hlavac of CZEPHO last week. “The taxation will cause that a payback of the solar projects will exceed 20 years.”

Furthermore, says Dorda, according to Jakub Hajek, a legal advisor of Czech legal office Glatzova and Co., an implementation of the new solar tax stands for a substantial change of the conditions related to doing business in the Czech Republic. “In this respect we expect a new boom of legal disputes and arbitrages between foreign investors and the Czech state,” says Hajek.

Dorda continues: “Experts estimate the value of imminent arbitrages will be well over 10 billion Euros. Since the new proposal of the solar tax is retrospective and has certain legal drawbacks, the odds are high that the investors will succeed in the arbitrages against the Czech Republic.

“Because of the solar tax, the Czech Republic may lose its credit among investors as a decent partner due to its unstable legal environment. The government officials and politicians cannot take new legal measures abruptly based only on figures presented solely by distribution energy companies. There are many evidences that these data are biased and overestimated.

Germany-based juwi, which has been active in the Czech Republic since 2008, and has realized 14 PV projects there, says it would like to continue its operations. However, a spokesperson tells pv magazine, “As a company, we need to make a profit to invest in further projects and create new jobs. In regard to our future plans, it depends on the final decision of the government concerning the tariffs. As long as the realization of PV parks is worthwhile, we are more than willing to invest in the Czech Republic.” He goes on, “If the tariffs are cut back in such a way that investing is no longer worthwhile, the attractiveness of the Czech Republic for investors – and thus also for project developers – might suffer.”

Not all is lost though, as Smolka says most of the PV plants are funded internally. There are no concrete figures, he says, but the majority of PV plants are in Czech hands. “Generally speaking, around 70 percent are funded by the country’s banks.”

Fading confidence

However, according to Martin Chalupský, Business Manager of Czech-based Nobility Solar Projects, even the country’s banks are losing confidence. Focused mainly on the ground-mounted sector, Nobility installed 18 MW of PV in Czech in 2009: it hopes to realize a further 23 to 25 MW this year. Speaking to pv magazine, Chalupský says he has experienced the banks’ failing confidence first hand. He explains that Nobility has already started building a 1.9 MW PV project, which was to be financed by a local bank.

“We have a contract with the bank for the financing, which was signed by both the local bank and the mother bank in Germany,” he explains, “and it was just waiting for our signature, but yesterday [September 2] we were told that they won’t finance the technology anymore, because they are afraid of the rumors here.” The bank reportedly told Nobility it will finance the project, but only after it has been built with the company’s own finances. When asked if this is feasible, Chalupský says, “It won’t be easy, but as it is not so big, we probably can finance it. But the cash flow will be very tight.”

Future prospects

When added together, future prospects don’t seem so sunny. Does the industry really believe the sector will be wiped out? “I don’t think they will risk to completely lose such a market that, by definition, will become very important in the next decade,” states de Haan. However, he says that retroactive cuts are “poison”, which help to “completely destroy credibility”, and are “not acceptable”.

Dorda is also highly critical of the Government’s proposed plans. “The solar boom in the Czech Republic has been brought about mainly by a failure to regulate the industry in a due and timely fashion by the respective authorities,” he states. “It is by no means the fault of investors. Now it seems that investors will be punished for the mistakes of regulators and politicians.

“Nowadays, the Czech politicians and authorities are eager to penalize (by taxes) ‘the solar barons’. It is a popular step for the local politicians, but it is very shortsighted approach. The final outcome may be billions of lost arbitrages and the damage of a reputation of the country and its rating.”

IBC Solar recently opened up a Czech subsidiary, IBC Solar s.r.o. When asked if the company is having second thoughts, General Manager, Gerhard Travenicek, tells pv magazine they are in it for the long run and, while tariffs may be cut in the short term, there is a positive way forward. “A dramatic reduction of the FIT, especially for roof connected small and medium size PV systems would be the wrong sign of the Czech government regarding reaching the EU climate targets. The currently positive development of young Czech PV companies could be in danger,” he says. “Nevertheless, IBC Solar s.r.o. is acting on a long term base, building up a network of Czech PV installing companies, and we are sure the PV sector in Czech will further develop. But in case of strong FIT reduction, the next years will be not easy.”

Martin Chalupský believes the ground-mounted sector will move into brownfield installations and, like in Germany, installations across the highways. He adds that Nobility is, however, looking abroad to other markets.

The waiting game

With words like "retroactive", “panic” and “liquidation” being thrown around, it is clear the Czech PV industry is in a state of confusion. The country’s association fears the worst and believes the government is not supporting a sector, which should be playing a key role in electricity generation. As the spokesperson underlines, “Their steps [to stop PV grid connections] are against the law, because they should, in priority, connect the renewable energy and disconnect traditional resources.”

Speculation is rife, but until mid-November the industry is simply playing a waiting game.