State assembles solar legal team

The government is hunkering down for a barrage of potential arbitration cases from solar investors who are seeking damages over energy legislation that they say is illegal.

The Anti-Monopoly Office (ÚOHS) is considering a Finance Ministry proposal to speed up the process for hiring lawyers and skip through a public tender process as the state prepares to fight claims from solar companies that could be as high as 40 billion Kč, the Finance Ministry's arbitration adviser for international legal disputes Radek Šnábl has said.

Three members of the International PhotoVoltaic Investors Club (IPVIC), a group of about 20 foreign and domestic investors, have sent initial letters to Czech authorities to start the three to six-month "cooling period" before international arbitration suits can be started. Around 70 more are in the process of being sent out, according to Michal Donath, the IPVIC spokesman, and so far, the government has said there is nearly 25 billion Kč in claims already registered.

The IPVIC said they would favor a settlement over going to court, but the government has not indicated it would be ready to negotiate any arrangement, and further seemed to reject a settlement when it asked to go ahead with the expedited process for selecting their legal representation.

"I don't think a settlement is out of the question. Right now, it seems to me that it will be more likely the state will not settle in the cooling off period, but wait until arbitration has started. This doesn't preclude them from a settlement," said Pavel Kvíčala, a partner at law firm Norton Rose.

Investors seeking international arbitration can choose from a number of documents or treaties. For many of the countries involved, there are bilateral agreements between their governments and the Czech Republic that guarantee trade standards. Another possibility, which is "very likely," Kvíčala said, is the use of the Energy Charter Treaty, an international agreement that 51 countries and the European Union have signed that provides a framework for the trade of energy and investments.

Domestic investors will likely wait out a Constitutional Court ruling filed by a group of senators that challenges the changes in solar legislation. If they do decide to pursue litigation, it would be in general courts, Kvíčala said, as there was no agreement between those companies and the government for a set arbitration procedure.

In April, lawyers for many companies announced they had mailed their letters to begin the process, but the government later said those letters had been sent to the wrong ministries rather than the Finance Ministry, which is responsible for dealing with the solar arbitration.

"The complaint that this was not sent to the Finance Ministry was a claim by Czech authorities to distract from the danger of arbitration," Donath said. "It isn't stipulated in international treaties or documents. They sent it to the prime minister's office and the Foreign Affairs Ministry, which are all part of the government, so it shouldn't matter."

Another source of confusion was the amount that solar claims were expected to reach. The government originally reported damages could reach 250 billion Kč, an amount disputed by solar companies that said their claims would be based solely on "damage incurred, no more," which would likely be formulated around the approximately 4.2 billion Kč the government would charge in total annually for the tax on solar profits.

The changes in the legislation were made after the solar boom of the past two years, during which incentives caused a huge influx of solar investors and projects. Solar investors were guaranteed a feed-in tariff - in other words, the electricity they produced would be bought at a set price by the government - which took into account that prices for the solar technology would decrease 5 percent per year.

However, those prices dropped much quicker than anticipated, which made the feed-in tariff system extremely lucrative. At the beginning of 2008, solar installations in the country had a total output of 3.4 megawatts. By the end of 2010, solar capacity reached 1,732 megawatts.

To dampen the boom, legislation was introduced that limited the size and location of solar plants, among other things, and introduced the controversial 26 percent tax on plants' profits. Since, solar expansion has all but come to a standstill, especially as applications to connect to the grid are currently frozen.

The Czech Republic is hardly alone in the solar boom. The country's boom actually followed in the footsteps of Spain, which saw a hike in electricity prices because of the costs of generous incentives for solar companies. And now, the country could again follow Spain when it comes to arbitration, Kvíčala said.

The cooling-off period for arbitration notices is ending for many cases in Spain, Kvíčala said, and the outcomes of those cases "could determine what is going to happen on the Czech front."

"Those cases can bring up arguments and considerations that will be relevant to the [local] situation," he said.

Cat Contiguglia can be reached at
ccontiguglia@praguepost.com