The sun is supposed to be free for all. Tell that to Czech industrialists, whose electricity bills may jump as much as 25 percent next year due to a boom in the solar power industry.
Companies including coal miner New World Resources NV, textile company Pegas Nonwovens SA and refinery Unipetrol may be the unintended victims of a law that forces distributor CEZ AS to buy power from start-up solar power producers at higher cost than traditional coal, gas and oil sources, and pass it on to customers, according to CEZ trading director Alan Svoboda.
Europe's push toward renewable energy is driving up prices from Spain to Germany as governments are under pressure to lower carbon dioxide emissions, make up for dwindling coal supplies and rising oil prices as well as entice solar power producers with financial incentives. In the Czech Republic, a five-year- old law guaranteed solar companies the right to charge inflated prices to allay start-up costs because equipment including photovoltaic panels was scarce and expensive.
Since then, the price of solar panels has dropped 50 percent because of mass production in China, attracting a much larger number of solar power producers than the Czech government originally expected, while CEZ and other distributors are required to buy their power at higher prices than it would for electricity derived from more traditional sources.
Rising Capacity
CEZ, the country's main provider or electricity, estimates the capacity of installed solar panels will reach 2,000 megawatts at the end of the year, making the Czech Republic the largest solar power producer per capita in the world, according to Svoboda.
In Spain, Prime Minister Jose Luis Rodriguez Zapatero's push to expand renewable energy production triggered a boom in investment by guaranteeing as much as 10 times the wholesale electricity price for solar power in 2007. Photovoltaic generating capacity blossomed five-fold within 12 months and left power users facing a bill of 126 billion euros ($165) for clean power subsidies over the 25-year life of the guarantee.
Similarly, German developers installed 713 megawatts of solar panels in the first quarter, 10 times more than in the year earlier period, as environmentalists and lobbyists resisted cuts in subsidies, according to Bloomberg New Energy Finance. In the second quarter, Germany installed 2.3 gigawatts.
Guaranteed Tariffs
In the Czech Republic, such an increase in production of solar power may drive electricity prices up 19 percent for households and 25 to 30 percent for companies next year because the guaranteed tariff for solar energy is more than 10 times higher than the wholesale market electricity price, CEZ's Svoboda estimated.
Solar producer dispute CEZ's claim of higher prices.
'Hysterical' Debate
The government, under pressure from industry, proposed a law on Sept. 14 that would cancel subsidies to solar plants built on farmland after March 1, 2011. The law, now awaiting parliamentary approval, will also significantly reduce subsidies for all solar plants that aren't connected to the grid by Dec. 31, 2010.
Investors are also concerned about the impact. Should power prices for companies rise by at least 25 percent, Unipetrol, the largest Czech refiner controlled by PKN Orlen SA, stands to lose 14 percent of its 2011 operating profit, said Jan Tomanik, an analyst at Wood & Co. brokerage in Prague.
Falling Profits
Profit for Pegas Nonwovens and New World Resources may drop 12 percent and 3.8 percent respectively, Tomanik estimated.
To slash subsidies in the future, the Czech government has approved an allocation plan that would cap subsidies if the yearly increase in production exceeds 4.5 megawatt hours between 2012 and 2020, effectively stifling further development in the industry.
At the same time, the state-controlled CEZ has come under criticism for cashing in on the solar boom by buying up almost finished plants that will be hooked onto the grid by the end of the year. The company has so far bought 11 plants for about 10 billion koruna ($532 million) with an overall capacity of 126 megawatt.
