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Lights out for renewable energy subsidies?
May 2012
A proposal to end all state support for renewable energy has been applauded by industry, but has outraged green energy producers.

Just two years after the Czech Republic experienced one of the biggest solar energy booms in Europe, mostly fed by generous state subsidies, policymakers find themselves at a crossroads. The options are defunding renewable energy entirely in order to bring down the climbing costs of electricity to consumers to the detriment of the renewables industry or passing a new energy strategy over which environmental lobbies are split.

The Energy Regulatory Office (ERÚ) has begun preparing draft legislation with the Industry and Trade Ministry that would halt all subsidies for renewable energy from 2014 onward, ERÚ Chairwoman Alena Vitásková told journalists April 25. The measure applies to new sources put into operation from 2014, but does not concern the existing renewable sources and those to be launched by the end of 2013. Vitásková said the state stands to save nearly 200 billion Kč ($10.7 billion/8 billion euros) if the subsidies are cut off from 2014.

She added if state funding is permanently discontinued for all renewable sources, including biomethane, bioliquids and biomass, households could save an average of 118,000 Kč on electricity between 2014 and 2040.

"The Czech Republic's per-capita support of renewable sources is one of the highest in the world," Vitásková said. "Its size endangers competitiveness of Czech companies."

Heads of heavy industry have long decried the use of subsidies for renewable energy and the resulting increase in the price of electricity, which they say creates such a cost burden for sectors that consume massive amounts of electricity for their production that they cannot compete with companies in neighboring countries that do not subsidize green energy as much.

"Between 2009 and 2011, our electricity costs jumped 300 million Kč per year," Jan Rafaj, a board member at steel producer ArcelorMittal Ostrava, told The Prague Post. "This is equivalent to 600 employee salaries."

Rafaij, who also serves as vice president of the Confederation of Industry, said other high electricity consumption manufacturing like glassmaking, and the chemical and engineering industries are also under immense pressure because of the continued high electricity costs, with some companies even suggesting they can no longer invest in the Czech Republic if something isn't done.

"We are not against renewable energy in principle, but we are against this subsidy, which has no comparison in any Western country," Rafaj said. "Every day you have to fight on the market with your cost structure. When your cost structure is burdened by a high subsidy and your Polish, Slovak, Austrian or Ukrainian competitor doesn't have the same burden, it means he can easily sell for less and keep more profit."

The Czech Photovoltaic Industry Association (CZEPHO), which represents a substantial number of investors both domestic and international, says Vitásková has overstepped her bounds with the proposal.

Zuzana Musilová, general secretary of CZEPHO, said that previous reversals on state support for renewable energy already have investors spooked.

"People are totally afraid of any change, and any news like this makes them more afraid. We think it can destabilize the situation on the market much more," Musilová added.

Musilová further argues the ERÚ's plans are short-sighted, because, according to CZEPHO estimates, it should only be about five more years before solar energy reaches price parity with other energy sources and can sustain itself competitively on the market without state support.

"On the other hand," Musilová said, "if we stop the support of the sector right now, the new installations will get to be too expensive for normal people, so probably it will mean the end of the development of the sector."

According to Vitásková's estimates, even if subsidies are stopped, the Czech Republic should still be on track to meet its European Union obligation of 13.5 percent of electricity consumption from renewable resources by 2020. Last year, renewable sources provided 10.55 percent of electricity consumption, according to the ERÚ.

A public advocate for renewable energy use, Neela Winkelmann-Heyrovská, says renewables are quickly becoming more competitive with conventional electricity sources and that the Czech Republic has the potential, assuming the right policies are implemented, to be among the first countries where renewable sources are really competitive with nuclear and coal.

She warned, however, that a different new law on supported energy sources soon to be put to a final vote in Parliament would dole out generous subsidies while at the same time undermining the green energy strategy in the long run.

"In this current draft, there is also unusually generous support for bio methane, which is bio gas purified to natural-gas quality," Winkelmann-Heyrovská said. "The only way to tell it apart is through carbon dating, and nobody is going to do that because it is too expensive."

She explained that given the lack of strong regulatory control, the law would leave the market vulnerable to unscrupulous natural gas companies. "We cannot exclude this scenario given how little control there is with certain market players," she said.

Czech environmental groups sent an open letter to President Václav Klaus April 27 asking him to remove Vitásková as head of the regulator. 

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