Czech Energy Regulator threatens to destroy renewables industry and damage the banking sector

The Czech energy sector is currently being held hostage by the Czech Energy Regulator (ERU), which is refusing to define the prices that renewable energy projects, installed before 2011, should receive next year. Each year ERU is required to publish a list of prices, based on which the Feed-in-tariffs are paid out. This year ERU has so far (that is end of November) refused to do so. If the situation is not resolved very soon, a total of 42 billion crowns (1,5 billion euro) would not be paid out to renewable energy companies.

The consequences would be dyer: defaults on bank loans, thousands of jobs destroyed in an instant, bankrupt companies and more. But not only the renewables industry would suffer, but also the financing banks, who have bankrolled projects worth tens of billions of euro.
How exactly did we arrive at this point?

ERU claims that the law, on which the biggest part of the Czech Republic’s renewable subsidies is based, first needs to be notified to the European Commission (EC) according to EU state aid law, before the subsidies can be paid out. When the law was passed, back in 2005, the subsidies in the form of feed-in-tariffs were not considered state aid within the meaning of EU state aid law. And subsequently the subsidies were paid out regularly each year, without the law ever having been notified to the EC. However the Czech government recently – out of the blue – decided to notify the law. ERU now argues, that unless notification is received or the Czech government issues a declaration confirming that the law does not violate EU regulations, it cannot set out the subsidies for next year. ERU chairwoman Alena Vitásková – who to the public presents herself as a martyr and fighter against what she calls the “solar mafia” – claims she either needs EU notification or a decision by the Czech government, which would make clear that the law and the subsidies are not counter to EU legislation.

Never mind, that both industry associations, the chamber of commerce and the Industry Ministry have all informed ERU, that the law does not in fact need notification for the subsidies to be paid out, ERU is still refusing to budge.

Questioned by journalists, what kind of government decision ERU would need to change its minds, Vitásková could not answer. This and many obscure statements make it clear, that the real motive behind ERU’s reckless behaviour is to be found somewhere else.

Vitásková, who herself has a background in the gas industry and has close ties to Czech president Milos Zeman – who himself is said to be fond of Vladimir Putin and his regime – is head of the independent Energy Regulator ERU. She has in the past years repeatedly claimed, that the solar boom, which saw more than 2 GW of photovoltaic power plants installed in the Country before 2011, was partly orchestrated by what she calls the „solar mafia“. Every since she was made ERU chairwomen in 2012, she has lead several media attacks on solar producers, claiming that a number of solar investors are defrauding the system by producing more energy than installed. She herself is the subject of a lengthy police investigation and her job is currently anything but safe.

Interestingly, Vitásková is currently facing criminal investigations for the dodgy appointment of EUR’s vice-chairwoman Renata Vesecká. The crucial problem for Vitásková is that as of 2016, she would no longer be chairwoman of ERU, since a new law was passed earlier this year, changing the leadership structure of the office. Vitaskova can only safe her job if a technical bylaw is passed, ensuring that she stays in office until the end of her term in 2017. That bylaw is currently still in parliament and on the way to being passed later this year, after parliament had stalled and delayed it. Apparently, Vitaskova has made so many enemies across the political, bureaucratic and economic spectrum that hardly anybody wants to see her remain in office.

Holding investors hostage

Vitaskova, whose motives might be found in the uncertainty over her personal future, her past in the non-renewable energy sector, her love for PR or elsewhere, has probably not realised, what she has got herself into.

It could be argued that all she wanted was a new debate in the media about how much the Czech state pays out to the renewable energy industry, which is in fact helping the government achieve its environmental goals as imposed by EU law. It could be argued that she wants to put pressure on parliament to guarantee her job until 2017. In all probability there are many reasons, but what is almost certainly true is that Vitaskova and her colleagues at ERU have underestimated the consequences and also don’t know what they are talking about.

No knowledge of notification

At a round table on 27 November 2015 Vitaskova expressed hope, that the situation would sort itself out, when industry minister Jan Mládek returns from Brussels with a notification at the same day. This displays a fundamental lack of knowledge about EU notification procedures and highlights, that Vitaskova has dug herself a hole and now needs a way out which helps her safe face.

As always, this also highlights the fact, that the basic legitimate expectations investors must have, are to legitimately expect key official bodies to be run by people who lack fundamental knowledge about important aspects of their work. As we pointed out in our article Mind the gap, investors basically have to expect, that even if a law is prepared by national institutions, ministries and regulatory bodies, and then debated and passed on government level, then passes the legislative process and becomes law, investors still have to presume that somebody along the line screwed up and that they might in the end get shafted.

A wave of ISDS lawsuits

Representatives of the Czech industry ministry assured renewables investors that a solution would be found, and unlike ERU they seem to understand the danger of the situation. If ERU fails to set out the prices for 2016 and companies go bust, the Czech Republic will face a barrage of lawsuits, both national and international. And in these cases, the Czech Republic probably won’t stand a chance.

If you have renewable assets in the Czech Republic and are affected by the current situation, get in touch with us to see how we can help you protect your assets.