Green energy in the coronavirus age

It might seem that in the time of the "coronavirus", everything revolves around face masks, disinfection or restriction of operation of various production facilities, and energy is talked about only in connection with the need to keep the elements of critical energy infrastructure running. However, this is not the case, as evidenced by yesterday's government meeting, after which the press conference mysteriously stated that the government "adopted a proposal to introduce measures to ensure the adequacy of support that meet the Czech Republic's commitments, as set out in European Commission decisions.”  So what did the government actually adopt?

At its meeting on 27 April 2020, the Government of the Czech Republic approved a bill amending the Act on Supported Energy Sources (ZoPZE). This long-prepared and widely discussed amendment to the ZoPZE contains a number of important changes in the field of "green energy", the most important of which are rules to support electricity and heat production in newly built "green" energy sources, as well as rules on so-called overcompensation controls, which may result in the subsequent reduction of public support for energy sources using renewable energy sources (solar, water, wind, biogas, etc.) or even in the imposition of the obligation to repay already paid support. The ZoPZE amendment responds here to the so-called notification opinions of the European Commission, which required the Czech Republic to carry out an overcompensation check and to reflect its results in an appropriate amount of public support (i.e. in the amount of purchase prices or green bonuses).

In this sense, the ZoPZE amendment simply considers several successive steps / stages of the given verification, of which the so-called sector inquiries are at the very beginning and at the end "individual verification by the State Energy Inspectorate (SEI)". With regard to this point, the explanatory memorandum to the ZoPZE amendment states the following:

"The principle of individual verification by SEI should be to verify whether the given electricity generation (source) meets the maximum values of the internal rate of return IRR, which are specified in the relevant notification decisions. If the IRR value is higher than the maximum permissible value, then the principle of determining the maximum possible supported amount of electricity in the future, to which the producer is still entitled, so as not to overcompensate the support, is applied. If this cannot be applied, as the aid has already been overcompensated at the time of the inspection (10 years after the electricity generation was put into operation), then the electricity producer will be asked to repay the aid in excess of the allowed IRR value. If this request is not accepted by the electricity producer, then the provided support will be recovered.”(Emphasis made by KŠB).

To this end, it is necessary to add another quote from yesterday's press conference of the Czech government:

"In the end, we decided that in all categories of renewable sources we will keep the margin between what is the minimum within the recommendation of the European Commission and the maximum, the so-called maximum amount, with the exception of photovoltaics, which we put on the minimum amount. In fact, this means that water resources will be within the so-called internal yield percentage of 7 percent, photovoltaics 6.3 percent, wind farms 7 percent, biogas 10.6 percent, biomass 9.5 percent, geothermal 7 percent.

Why did we decide this? The reason is simple. We are convinced that the photovoltaic boom of 2009 and 2010 was one of the largest "tunnels" ever created in the Czech Republic. It will cost us 500 billion crowns in photovoltaics alone, while at one point the purchase prices there were up to tenfold, as a result of which we now pay a total of 43 billion crowns a year for renewables as support, and photovoltaics unfortunately makes the most of them and that's 29.2 billion, with photovoltaics from renewable sources accounting for only 2.6 percent of total electricity production, in contrast to biomass, for which we give 4 billion in support, or several times less than for photovoltaics, but it makes up 4.6 percent in total share of electricity generation. For this reason, we decided to overcompensate or set a limit of 6.3 percent as part of overcompensation.(Emphasis added by KŠB).

The fate of the ZoPZE amendment is now in the hands of the Parliament of the Czech Republic and it is thus a question of whether the proposed principles and cornerstones of the overcompensation control will be maintained or whether they will be modified in some way. However, it is already possible to repeat again, albeit with some simplification, that public support is a matter with little demands and - unfortunately - not unchanged over time. The fact that today an entity receives a promise of such public support (e.g. a promise to allocate emission allowances free of charge) or that certain public support is even paid to it (e.g. in the form of green bonuses) does not mean that such support will not be reduced in the future, e.g. in the form of a gift tax on allocated allowances or on the basis of an ex-post established overcompensation check. It is a question of many economic calculations as to whether such an approach is economically justified, taking into account all externalities, including the effects of possible consequences of ongoing disputes over damages. However, the fact that the imaginary "Pandora's box" of interference by the public authorities with the rights of private entities (justifying the need to remedy the alleged previous lapses of the same public authority) is already fully open, seems quite clear.