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The Czech government has established framework conditions for the review mechanism required by the EU Commission

In a nutshell:

The Czech government has issued a document addressing the mechanism for the review of RE plants in terms of possible overcompensation. According to that document, overcompensation would be considered to exist if an internal interest rate of 10.6% (for fuel-operated installations) and/or 8.4% (for the remaining RE sources) was achieved. The review should in the first place be carried out based on representative exemplary installations. If the review reveals overcompensation, a plant operator can either accept the general measures for recouping overcompensation or have an individual review conducted in his installation. The

government document is very generally worded as regards the measures themselves. Therefore, the detailed measures will not

be known before the amendment is announced by the Ministry of Industry and Trade.

In the notification procedure regarding the support scheme provided for in Act No. 180/2005 Coll. on Support of the Production of Electricity from Renewable Energy Sources, of which we informed you last time in the May issue of this newsletter, the Czech Republic was obliged to introduce a review mechanism in order to identify possible overcompensation.

In its session on 21. August 2017, the Czech government determined

the framework conditions for and the bodies involved in this review mechanism.

Regarding the bodies involved, the government document includes

the information that the Ministry of Industry and Trade has been tasked with elaborating an amendment to the RE Promotion Act No. 165/2012 Coll. and the relevant implementing regulation. The amendment will define the legal foundations and the rights and obligations of the involved bodies. The implementing regulation will define the review method and parameters.

According to the government document, the review will be carried out by the State Energy Inspection. The market operator OTE will ensure data collection from the power producers. The Energy Regulatory Authority will, in turn, implement measures aimed at eliminating identified overcompensation.

With regard to the identification of possible overcompensation, it has been explained once more that overcompensation may result from a cumulation of several aid incentives on the one hand, but may also be caused by an overvaluation of the cost factors based on which the incentives were calculated.

The threshold value indicating possible overcompensation has been set at an internal interest rate (IRR) of 10.6% for fueloperated plants and an internal interest rate of 8.4% for all remaining plants such as wind power, photovoltaic and hydro plants. These values are based on the values listed in the decision of the EU Commission and still regarded as acceptable. It is worth noting that the method adopted by the Energy

Regulatory Authority for determining the feed-in tariffs (FIT) in the years from 2006 to 2012 assumed an internal interest rate from 6.3% to 7% and, according to the EU Commission, the available data show that in the Czech Republic this value is exceeded only for PV (up to 8.4%), biomass (up to 9.5%) and biogas (up to 10.6%).

Regardless of whether there was a cumulation of aid or not, no

installations falling within the scope of the de minimis regulation

will be subject to the review. Thus, exempt from the review will be installations that received funding of a maximum of EUR 200,000 per enterprise within the previous three years.

Installations receiving aid under several support schemes will be

subject to an individual review in terms of possible overcompensation.

First, a simplified review will be conducted, as it is argued that it should ensure the effectiveness of the review. It consists of the selection and review of representative installations (at least 10 per group). The division into groups is based on general criteria (year of commissioning, installed capacity, energy source), on the one hand, and also on the type of further aid provided to those installations apart from the aid via feed-in tariff or Green Bonus, on the other.

If the simplified review shows that the aid received by an installation

apart from the feed-in tariff or Green Bonus has an interest rate of more than 0.1%, that installation will be subject to an individual review. In such a case, the plant operator will have the possibility to decide whether an individual review should actually take place or whether he voluntarily accepts the general measures determined for the group of installations to which his installation belongs.

If this individual review reveals overcompensation, a measure will be adopted to recoup it.

If there is no cumulation of aid, a review to check any possible overcompensation should be carried out in a representative

number of relevant installations (at least five) selected according to the aforementioned general criteria. Such a review of selected installations will be focused on the accrued and future costs, including investment and operating costs.

If the review of a group of representative installations discovers

a risk of overcompensation, the plant operator belonging to that

group will have the choice to either accept the general measures

for recouping the overcompensation or to have an individual

review conducted in his installation to find out if it has been overcompensated.

This could lead to a preferential treatment of less efficient installations.

Therefore, in the upcoming legislative process it will be important to observe how the amendment and the implementing regulation will address the issue of what operating and investment costs should be recognised. Otherwise, such treatment could pose a risk of malpractice.

Unfortunately, the government document does not indicate the form in which to recoup overcompensation; it only generally repeats all conceivable options in this regard, such as the reduction of aid in the future, shortening of the aid period, or the reclaiming of overcompensation. The key tool, however, might be the price decision of the Energy Regulatory Authority. In the case of aid cumulation, it has also been stipulated that the payment of aid will be suspended in the future or the aid amount will be deducted from the feed-in tariff or the Green Bonus. In this context, also an aid repayment system similar to

the solar levy was mentioned as an example.

The amendment to the RE Promotion Act and the implementing regulation might bring more clarity also with regard to this issue.

The draft amendment should be completed by the end of this year and should be presented to Parliament early next year for the legal foundations of the review of installations to be in place in due time. The review will be carried out 10 years after the commissioning of an installation. Regarding the review of the installations commissioned in the years from 2006 to 2008, the EU Commission has set the Czech Republic a time limit until 2019. However, due to the upcoming parliamentary elections, it does not seem realistic to expect that the draft amendment will be completed this year.

We will keep you posted on the progress in the legislation process in the further issues of this newsletter.

The Czech Regulatory Authority has published the price

decision for 2018

Thanks to the decision of the EU Commission regarding the support

for renewable energy sources, the Czech Energy Regulatory Authority made and announced the price decision on the amount of support for renewable energy sources for the coming year. This was the first time in two years that the Czech government issued the decision without delay. The price decision is available from the website of the Energy Regulatory Authority. With regard to the existing installations to which an adjustment to the industry price index applies (all installations except for biogas and biomass installations), the feed-in tariffs were increased by 2%. The increase in electricity prices would lead to an increase in the difference between the feed-in tariff and the Green Bonus.