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Solar energy saturates market

State follows German and Spanish lead, considers cutting subsidies

Posted: September 2, 2009

By Stephan Delbos - Staff Writer | Comments (1) | Post comment

Solar energy saturates market

Courtesy Photo

The Industry and Trade Ministry is drafting a bill that could end state guarantees on the wholesale market price of solar energy.

Solar panels have cropped up in droves since the state began supporting solar energy projects in 2005, making solar energy plants one of the Czech Republic's hottest -- and safest -- investments. But as Spain's recent solar boom and bust showed, too many incentives can oversaturate a market in record time. As a result, the government has been forced to consider curbing renewable resource subsidies in the Czech Republic.

The Industry and Trade Ministry is drafting a bill that, if passed this autumn, would end state guarantees on the wholesale market price of solar energy. Price guarantees, or "feed-in tariffs" locked in for 20 years in 2005, fixed the price of solar power between 12,790 Kč and 12,890 Kč per megawatt hour and limited cost decreases to 5 percent per year, even as the cost of producing solar energy falls 10 percent annually, according to the Energy Regulatory Commission. The feed-in tariffs led to a whopping 24,678 percent increase in solar energy plants, from nine in 2005 to 2,230 as of August this year, as investors came to cash in on guaranteed profits.

The ministry believes the industry has become too lucrative to warrant additional funding, and has proposed to cancel the annual five percent limit by which the Energy Regulatory Commission is allowed to cut guaranteed market prices on solar energy. According to Matyáš Vitík, a spokesman for the Industry and Trade Ministry, the solar industry has begun to take unfair advantage of government support.

"The Industry and Trade Ministry wants to change the law because the public support of solar energy has become the instrument of profit," he said. "The plants are built because of profit."

Megawatts produced in ČR
The Czech Republic is now the EU's 8th-largest solar energy producer.

2005 0.12
2006 0.15
2007 0.35
2008 3.40
Jan 2009 54.29
June 2009 73.71
July 2009 80.21
Aug. 2009 83.96   

Number of solar power
plants in ČR

Solar plants have grown from only nine in 2005 to 2,230 as of August 2009.

2005  9
2006 12
2007 28
2008 249
Jan. 2009 1,214
June 2009 1,818
July 2009 2,046
Aug. 2009 2,230   

But experts in the European solar energy sector say that government support is a continued necessity if countries like the Czech Republic are to realize the European Union's Energy Directive, which aspires to having 20 percent of energy produced by renewable resources by 2020. Eleni Despotou, deputy secretary general of the European Photovoltaic Industry Association, said government support of solar energy doesn't go into investors' pockets, but into research and development, which helps bring the cost of solar energy to more manageable levels.

"To say we don't need the tariff is not true. We need to lower the costs of producing solar energy in order to become more competitive," she said. "We don't advocate high tariffs but [instead] what we call a 'fair' tariff, which is typically lower and longer term."

Energy 21, with eight solar plants located throughout southern Bohemia and Moravia, is one company that has taken advantage of feed-in tariffs. CEO Daniel Kunz said the government's regulation of the subsidy is understandable and perhaps even necessary, but cautioned the long-term price stability offered by feed-in tariffs is one of the most attractive qualities for investors. If the government goes too far in price regulation, it risks capping growth in the important new industry.

"The necessity to optimize the growth of [solar] installations in the development of solar technologies is comprehensible," he said. But, he added "the sector's attraction is based on the combination of a reasonable pay-back period and low economic risks for high-quality projects. In the case of new risks connected with feed-in tariffs and [price] predictability, the sector will lose its attraction, and its rate of growth will slow down or stop."

Solar energy remains the most expensive renewable energy source, and it is unlikely to achieve cost parity with traditional energy sources in the Czech Republic before 2020. But, as solar technology advances, costs decline, said Martin Šimonek, New Energy Finance's analyst for solar power in Central and Eastern Europe. According to Šimonek, each time solar energy production doubles, production costs decrease 19.8 percent, making government support for solar power environmentally sensible in the short term and lucrative in the long term.

"The greater the global capacity for solar power production, the cheaper it becomes," he said.

The Czech Republic followed Germany's and Spain's lead in introducing feed-in tariffs to aid the fledgling solar energy industry. Since the tariff's 2005 introduction, the country has become the eighth-largest solar energy producer in the EU, with a yearly capacity for 83.96 megawatts, up from just 3.4 megawatts in 2008, according to the Industry and Trade Ministry. The Czech Republic is not the first to impose limits on an all-too-successful tariff system.

After feed-in tariffs sparked a stunning boom in solar energy investment, Spain was forced to alter its tariff system when it became clear that the industry was glutted, producing 2.6 gigawatts of energy in 2008, well above the target of 400 megawatts. The Spanish government lowered solar power rates 30 percent last fall, effectively pulling the rug out from under the industry, leading to huge losses for investors and solar technology producers. Perhaps taking the southern country's losses as a cautionary tale, the Czech government is opting to follow Germany's lead with a more flexible tariff reduction system, said Šimonek.

"The Czech Republic is following the German example of flexible degradation, meaning if you reach certain levels of output, the degradation of costs will be higher in the next year, but if you don't produce too much, the cost degradation will be lower," he said. "This is a much healthier approach than Spain's."

Stephan Delbos can be reached at

Tags: solar, energy, feed-in tariff, panels, Energy Regulatory Commission.

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