Supporting the generation of electricity and heat from renewable energy sources has a long-standing tradition in the Czech Republic.
In 2005, new legislation was adopted which unified the previously fragmented laws on this issue into a single and comprehensive legal framework that would be compatible with the acquis communautaire in the field. On January 1, 2013, this law was replaced with an entirely new set of regulations which remain in effect, albeit with a number of subsequent amendments and supplements. State support for renewable energy (i.e., non-fossil natural energy sources such as sun, water, wind, biomass, and biogas) takes the form of fixed feed-in tariffs and so-called “green” bonuses, the amount of which is determined annually by the Czech Energy Regulatory Authority.
The support of green energy sources is also characterized as public aid, which is governed by strict European Union rules. After the Czech Republic’s new Renewable Energy Sources Act was adopted in 2012, Czech authorities realized that the new legislation had been prepared without the Czech green energy public aid system going through the process of so-called “notification” – an assessment of its compatibility with the EU law. Accordingly, the Czech Ministry of Industry and Trade, in cooperation with the Czech Energy Regulatory Authority, prepared the notification, which was submitted to the European Commission for review in January 2013. The European Commission verified the notification and issued its opinion in June 2014, expressing its regret that it had received the notification for the Czech electricity and heat generation support system on an ex post basis after its introduction; however, the Commission held that the system itself was compatible with EU law.
However, the EC’s statement did not fully resolve the situation since it explicitly stated that it only applied to support for generation of electricity in renewable power facilities that were commissioned after January 1, 2013. Accordingly the EC’s statement did not apply to the support of energy derived from secondary sources, the support of heat generation and cogeneration, or the support of the production of energy from biofuels, bioliquids, biomethane, or decentralized electricity generation.
The EC’s statement gave rise to great turmoil as the vast majority of renewable energy generating installations were commissioned in the Czech Republic before January 1, 2013, and thus public aid for these installations was not covered. Therefore, most of the green energy sources eligible for (and receiving) some sort of public aid in the Czech Republic remained outside of the approved support system. The Czech Energy Regulatory Authority pointed out that any aid provided in conflict with the relevant acquis communautaire would be illegal and therefore refused to grant public aid in these areas in its price decisions.
The issue fundamentally affected the situation in the Czech green energy sector as it created a real risk to the operations of most energy facilities using renewable sources, many of which had been in operation for several years, and which would become completely unprofitable without public aid – and thus jeopardizing the ability of many operators of these facilities to repay loans for their development and construction. This situation, along with the reduced aid, significantly influenced the willingness of investors to develop new facilities and the whole industry thus entered the stage of actual clinical death.
After a long effort, it was finally possible to obtain all the necessary statements on the filed notifications issued and, since December 2017, all public aid for Czech green energy is in principle covered by the EC’s relevant notification statements. The last payments of green bonuses, which were previously withheld, should be made (according to the latest available sources) by the end of April 2018.
Nonetheless, it will take a while before investor confidence in the Czech energy sources sector is restored and this may affect the ability of the Czech Republic to meet its commitments related to the ratio of renewable energy production to total energy production.
By Vaclav Rovensky, Partner, and Tomas Sequens, Counsel, Kocian Solc Balastík
This Article was originally published in Issue 5.2 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.