Retroactive tax causes rift between solar investors and the government
Solar panels are known around the world for being the best method for harvesting energy from the sun, although in the Czech Republic some see them as having a new use: siphoning off public money.
Renewable energy has become extremely costly to the government, which has been forced to roll back the support system that resulted in the construction of almost 11,500 new solar plants after its introduction in 2005.
The sector has been hit by a scandal involving ex-employees of the Czech Energy Regulatory Office (ERÚ) who, since 2006, allegedly altered energy purchase prices so some companies would receive higher profits. They are said to have received bribes for their actions.
This new form of “green” energy, with green referring to the color of money, has cost the Czech Republic billions of crowns.
Timeline of events
- 2005 Law regarding renewable resources adopted by Parliament
- 2006 First high purchasing prices set by ERÚ based on market
- 2007 Prices of solar panels falls, Czech law does not react fast enough
- 2009-10 Solar boom: Thousands of plants built and operated with bonuses
- 2010 A 26% tax introduced to cover mistake in setting high initial prices. The 26 percent contribution is valid until end of 2013
In 2010, amid spiraling costs, the government introduced a 26 percent retroactive solar tax on revenues earned from 2009 onward.
This has caused a rift with the foreign investors, many of whom were uninvolved in the scandal and entered the Czech market on the promise of incentives for bringing their business to the country.
In his first speech to Parliament, President Miloš Zeman called the money filtered during the solar power scandal the “biggest tunnel” in Czech history and that a group of aggressive “solar barons” were responsible for stealing almost 200 billion Kč from the country and its people.
In April, Zeman formed a special task force, alongside the regulatory office, the Interior Ministry and the Security Information Service (BIS), to investigate the issue. They say they hope to assess the extent of the damage done, while building a case against former ERÚ employees.
Analysts say the scandal makes the Czech Republic appear to be a poor location for investment because of its unstable legal system, and pundits expect it may take 10 to 15 years for the solar industry to recover. The costs to consumers are said to be considerable.
“Today, the consumer pays more than 25 billion Kč a year toward solar plants,” said Jiří Chvojka, spokesman for ERÚ, “out of which about 12 billion Kč goes toward 22,000 small roof solar panel owners. The rest goes to the big investors.
“The situation is a question of life and death for many Czech traditional industries and for households as well, as they now pay more than 10 times for renewable energy what they did six years ago.”
According to Chvojka, the falling price of solar panels in the world market and “hidden mines” in the Czech legal system that prevented the government from cutting prices meant there was a huge incentive in setting up in the country.
“In 2009 and 2010, many Czech foreign investors simply read the law and price lists [for purchasing power] and decided to build solar plants to gain high and guaranteed profit from the state for the next 20 years … and later lobbied to keep this situation as long as possible,” he said.
It was not until Alena Vitásková was elected to be ERÚ chairwoman in 2011 and had the business audited that the problem was discovered. Vitásková has herself denied allegations of wrongdoing leveled at her in relation to the awarding of licenses for two solar plants. Amid the high level of controversy surrounding her, reports have indicated she has been assigned bodyguards by the Interior Ministry.
She discovered the original prices set in 2006 and 2007 were too high, equating to approximately 26 percent above the legal requirement. Chvojka said this is the reason the government has issued a 26 percent retroactive solar tax.
Prime Minister Petr Nečas met Vitásková May 23 to speak about putting a cap on the amount households will pay toward renewable energy in the future, with anything above that amount subsidized by the government.
During the meeting, they discussed their plans for their new task force of which Miloslav Kala, president of the Supreme Audit Office, is part.
“The main point is to make the cooperation of the institutions more efficient,” Kala said. “And the audit will place particular importance on discovering any possible fraud and wrongful handling of system meters.”
He said support of sustainable energy totaled 3 billion Kč until 2009, but in 2013, the bill will be more than 44 billion Kč.
“Just to illustrate: In 2006, 1 MWH (megawatt hour) of sustainable energy sources was subsidized by 28 Kč; in 2013, it is nearly 800 Kč,” he said.
Kala says the reason the price hike went unnoticed for so long was because the issue developed alongside an investment bubble.
He also suggested a period of political instability in 2009, during which the government of Prime Minister Miroslav Topolánek collapsed, caused a backlog in legal amendments that was not resolved until 2010.
Today, investors lured into the country on the promise of enticing incentives are launching arbitration over the 26 percent retroactive solar tax, believing it to be unfair.
Members of the International PhotoVoltaic Investors Club (IPVIC), an association of international solar power investors heavily involved in Czech industry, say the new levy discriminates against companies and individuals who entered the solar industry in good faith and in a manner in keeping with local law.
IPVIC’s secretary general, Frank Schulte, said the arbitration case came as a last-ditch method to resolve the situation.
“The investors decided to arbitrate after a two-year long effort to discuss the issue with the Czech government and find an amicable solution. It is an absurd situation where rules are being changed retroactively and thus unfairly.”
Schulte said the first changes came when amendments introduced in 2010 first reduced the purchasing prices of solar energy by half, and shortly after they completely canceled all support for photovoltaic plants that were not connected to the power grid by February 2011.
Schulte said they entered the Czech market as businessmen and had always operated within Czech law.
“The members of companies at IPVIC are individuals who decided to invest their capital in the Czech solar market based on the incentive program prepared and adopted by the government,” he said.
The government is now planning to scrap all subsidies supporting the country’s solar industries.
According to Chvojka, the only people who can now benefit from turning to solar power, thanks to smaller administrative barriers, are those who install small solar plants on their roofs, and he suggested the only support they will have is through reduced electricity costs. They can also sell their excess electricity.
“The positive aspects of energy from renewable sources have totally disappeared from Czech discourse,” Schulte said. “And the fight against renewables has taken on a social-political dimension completely unrelated to general legal and business issues.”
The individuals or group of individuals responsible for the scandal are yet to be named.