Withholding tax angers solar industry

In the latest round of the solar energy battle, the government has outraged companies and investors in the solar sector by passing a draft amendment that would implement more restraining measures on the industry, including a tax that some say is illegal.

The draft, passed by the Cabinet Oct. 13, would introduce a withholding tax for solar plants, as well as implement higher fees for solar companies to buy arable land from the agriculture fund and require them to purchase emission allowances. The withholding tax would mean the government would simply keep part of the money it would have paid in subsidies.

"If this change is introduced, it's highly likely it will trigger claims by foreign investors against the state," said Jakub Hájek, head of the renewable energy team at the law firm Glatzová & Co. "Investors rely on the stability of the investment conditions, and subsequently, these conditions would be materially changed in a way that is adverse to investors."

Hájek added that banks that help finance the foreign investors may also seek legal remedy.

The amount for the tax, which will apply to all plants including those already built and commissioned, will not be set until Oct. 20, but the measures will be based on an absorption model where the size of fees corresponds to the size of the plant.

The sharp change in policy regarding solar plants would significantly damage the country's reputation with foreign investors, according to the Czech Photovoltaic Association (CZEPHO).

"What if the government played a similar price-changing game with something like pension reform?" said František Smolka, president of CZEPHO, in a statement. "It's a very bad sign for anyone who wants to make long-term investment decisions."

He added that a proposal last week by Industry and Trade Minister Martin Kocourek to charge energy companies for carbon credits that were originally free would have been sufficient to cover the costs of solar power.

The American Chamber of Commerce echoed these concerns in a statement that said the tax would hurt the economy's competitiveness, and the solution to electricity prices needs to be more transparent.

"Companies and the general public should be aware of and informed about the actual investment and operating costs, as well as other aspects that influence electricity price setting," the statement said.

Nevertheless, the draft was passed unanimously by lawmakers, who said it was necessary to meet their goal to chop by 10 percent the electricity price increase, forecast to jump 13 percent for households and 18 percent for business by the Energy Regulatory Office (ERÚ).

But whether those price forecasts are heavily inflated is being contested by CZEPHO, who has filed a constitutional complaint against the ERÚ saying calculations by the Authority are based on faulty information.

The way electricity prices are calculated is based on total electricity consumption, the increase in the installed capacity of power plants that use renewable energy sources, the development of energy prices and regulated electricity price components, according to Jarmila Lehnerová, a spokeswoman for the ERÚ.

Because of a government scheme originally designed to encourage the development of renewable resources, the government has promised subsidies to these solar plants, which means it has guaranteed, legally, there are buyers for certain amounts of energy from these plants at set prices to make up for the higher cost of producing the renewable energy. The subsidies caused a boom in the industry, and the price of producing solar energy fell a lot faster than originally anticipated, so the government is buying solar power for a much higher price than it costs to produce it. In turn, the price of electricity for end consumers will go up.

The ERÚ has forecast that by the end of 2010 there will be 1,400 MW of installed capacity from solar plants, which is how it calculated the 13 percent and 18 percent increase. However, according to CZEPHO, based on current market trends, installed capacity will only reach 1,200 MW. In CZEPHO's calculation, that would lead to a rise in electricity prices of only 5 percent to 6 percent, and 7 percent to 8 percent for industry.

"The erroneous estimates can only benefit big energy companies," Smolka said in a statement.

Lehnerová would not comment on the constitutional complaint or the price estimates made by CZEPHO, saying they didn't know from where CZEPHO got its input data for the calculation.

"The ERÚ has extensive input from all participants in the electricity market and is thus able to create an accurate estimate of future development for 2011," she said.

Cat Contiguglia can be reached at
ccontiguglia@praguepost.com