Czech update: Solar investors protest against imposition of new solar tax


It has been the first ever demonstration in the history of the Czech Republic.

The Industry and Trade Ministry insists the tax should ensure that the period after which investors in solar plants will receive return on their investment is not shorter than 15 years, as it is set in the law on support to energy production by renewable sources from 2005. By doing so, the Czech government wants to limit a possible sharp rise in electricity prices in 2011.

Introduction of "unique" solar tax

The solar tax will be charged from feed-in tariff (FIT) revenues to be paid to solar investors who commissioned their solar plants with installed capacity over 30 kWp in 2009 and 2010 respectively. After strong protests from local investores, the deputies decided to limit a duration of the solar tax to only three years (2011-2013). The tax 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).

The Czech Parliament wants to approve this new amendment on November 7 in a bid to prevent a sharp rise in power prices next year. The bill will have then to be approved by both houses of the Czech Parliament over next few days.

Dramatic Consequences for investors

Despite the fact that the tax should be valid only for three years, it will severely hurt many solar investors whose projects are financed via bank loans. Many of them will not be able to restructure their loans and will go bust.

It is indeed a unique and unparallel action taken by the politicians within a member state of the European Union. It will damage 1,450 solar companies and investors in the country. It will also inevitalby result in a series of arbitrations and court disputes, according to the Czech Photovoltaic Industry Association.

"Retroactive taxation is a flagrant violation of the original rules of the game which can hardly be justified," said Frantisek Smolka, president of the association.

Loss of jobs

The new amendment will also jeopardise more than 5,000 jobs which the photovoltaics (PV) industry has created, according to Smolka, whose association members are investors in PV plants. Moreover, it will harm the future developement of the solar industry as both investors and businessmen will be severely damaged.

In a big rush

Both the Czech cabinet and Czech politicians are in a big rush with the preparation and approval of this plan to establish the tax as part of an amendment to the bill on support to production of energy from renewable sources. The bill would then have to be approved by the lower house by mid-November 2010.

The reason for the legislative rush is simple: the Czech politicians are afraid of the possible intervention from the side of European Commission. They know what has recently happened in Spain and therefore they do it in a very secret and prompt manner. ??The new legislative measures must be effective from January 1, 2010. It has been prepared without any due legislative procedures and without any talks with representatives of the local solar industry.

End of support for ground-mounted systems

Under the amendment, new PV power plants built on agricultural or forest land will no longer be entitled to the support. However, the existing power plants, which will supply power to the distribution network, will not lose the support.?? The new solar legislation will limit state support to solar power generation from small rooftop installations.

No more support for off-grid systems

Moreover, there will also be no subsidies for off-grid systems from 2011. Under the amended law, operators of off-grid solar power plants, which will start to operate by the end of 2010 will have 12 months to connect the facilities to the grid. Their entitlement to the support will be maintained if they connect them to the distribution network. If this is not technically or financially feasible, they will receive no more FIT payments from 2012.

The new solar amendment also introduces a 500 percent increase of fees paid to the authorities for using land, in order to discourage investors from building ground-mounted PV plants.

Other retroactive measures

The Czech Parliament has also approved other legislative measures (many of them are retroactive) including:

  • An end to tax holildays for all operators of PV plants to be applied retroactively
  • Change of write-off scheme (its deterioration) applied retroactively to all PV plants

Dangerous outcomes?

The House of Deputies (the lower house of the Parliament) will likely pass this new legislation within the next week, which will stand for a big threat not only for solar investors, but also for the state itself.

The proposed measure is the largest expropriation of private property in the Czech Republic since 1948. If implemented, the 26 percent tax on revenues will have the following results:

Popular content

  • Law suits and arbitration proceedings against the Czech Republic amounting to several billions of euros
  • Loss of investor confidence in the Czech Republic – a disaster for future economic development of the country
  • Credit rating: a potential reduction in the country’s rating leading to higher funding cost of the state budget deficit
  • A higher risk premium for all Czech assets including listed Czech companies, in particular in the energy sector

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