Authors: Jan Koval, Robert Porubský, Ivo Skolil

On 27 April 2020, the government approved a draft amendment to the Act on Promoted Energy Sources (Act No. 165/2012 Sb.) (the “Amendment”). Among other things, the Amendment regulates the limits for proportionate aid for power generated in photovoltaic power plants (“PPPs”) put into operation between 1 January 2006 and 31 December 2015 (i.e. the majority of producers of electricity from PPPs in the Czech Republic). The Amendment is scheduled to come into effect on 1 January 2021.

Originally, the level of proportionality of the internal rate of return (the “IRR”) was set at 8.4% (in the Czech Republic, the actual rate is estimated to oscillate between 4% and 12% in individual PPPs). After a certain time, however, the level was reduced by 25% to the final 6.3%, i.e. the lowest level possible for the proportionality of the operating aid pursuant to the decision of the European Commission. The government has declared its objective to restrict further expenditures on operating aid (i.e. to the detriment of the existing PPPs operators) and to make PPPs compete for the operating aid in scheduled auctions to the maximum degree possible. That means a shift from general operating aid to PPPs to aid won by individual PPPs producers in auctions.

The amendment implies that the proportionality of the operating aid for the PPPs will be reviewed in individual sectors. Where the statutory IRR limits are found to have been exceeded, it could imply excessive aid. That could lead to a general decrease of the purchase prices (as set by the Price Decision set by the Energy Regulatory Office). Such decrease could, however, be insufficient, and therefore the Amendment provides for the possibility to withdraw the entitlement for operating aid for PPPs in individual cases in the future or to make PPPs return excessively drawn operating aid funds.

The draft amendment is now heading to debate in the Parliament. If it is passed and comes into effect in the current wording, some producers of power from PPPs could face a significant decline in their revenues, putting at risk the fulfilment of their obligations, e.g. from credit financing, and a drop in the value of the collateral provided. We will keep monitoring future developments.