European Commission publishes its decision on support for Czech installations commissioned between 2006 and 2012

​In a nutshell:

As we already discussed in the February issue of this newsletter, the European Commission approved the support scheme provided for in Act No. 180/2005 on the Production of Electricity from Renewable Energy Sources, which finally led to the publication by the Czech Energy Regulatory Office of the price decision regarding the level of support for the year 2017.

In this article we would like to address the content of the decision. The decision is really worth reading and has in the meantime been published on the webpage of the European Commission.

In its decision, the European Commission concludes that the support scheme for the RE installations commissioned in the period 2006-2012 complies with EU law. However, the support scheme should not have been introduced before the European Commission gave its final approval. Nevertheless, the European Commission refrained from raising objections.

It is stated in the decision, in the first place, that the support scheme was classified as the so-called ”new aid” and not as ”existing aid”, a fact that was differently construed by some members of the professional community. New aid may in principle be granted only after the European Commission issues its final approval.

Moreover, according to the decision, the support scheme complies with the guidelines on state aid for environmental protection from 2001 and 2008. In particular, it is stated that the IRR assumed or calculated by the Czech authorities, as presented in Table 3 of the decision, is appropriate. In the opinion of the European Commission, the support does not basically lead to overcompensation. In respect of the support to promote photovoltaics, this stance is also substantiated by reference to the introduction of the solar duty.

In this context, the European Commission agrees with the ruling of the Czech constitutional court, according to which the introduction of the solar duty was not retroactive and did not violate the operators' legitimate expectations. The reasoning behind this is, in particular, that the support scheme is a non-notified and thus basically unlawful measure to which the principle of legitimate expectations cannot be applied. Furthermore, the European Commission follows the constitutional court's line of argumentation that is unclear to us, namely that the support scheme guarantees only that beneficiaries will recover their initial investment in the renewable installation within the first 15 years from commissioning but it does not guarantee any specific support tariff.  The discussed RE Promotion Act also guarantees the amount of the revenues to be earned over a period of 15 years.  According to EU case law, individual operators are no longer protected from future amendments to regulations favourable to them, whereas this argument should rather apply to the withdrawal of support for photovoltaic power plants commissioned after 31 March 2011 and the resulting short period between the passing and coming into force of the amendment.

As we already mentioned in our last newsletter article, the Czech authorities undertook to adopt a review mechanism that would enable identifying any risk of overcompensation. It is stated in the decision that such mechanism refers mainly to overcompensation that might arise whenever aid under the support scheme is granted in addition to the actual operating aid, because the current operating aid scheme does not incorporate any provisions allowing the adjustment of support levels in case of cumulation of aid.  The support level was calculated taking into account only tax exemptions applicable at that time. In addition, the review mechanism should address the risk of overestimation of cost factors used for the calculation of the support level (technical and economic parameters, such as capex per kW, operating costs, capacity utilisation).

The review should be carried out 10 years after the commissioning of the installations. Installations commissioned between 2006 and 2008 may be reviewed till end of 2019 so as to give the Czech legislator enough time to create an appropriate legal framework for the review and, if necessary, the recouping of overcompensation.  The decision of the European Commission does not stipulate any specific manner in which overcompensation should be recouped, but the mentioned options include, for example, the reduction of the level of future support, the reduction of the period during which support is paid out, or the recovery of the amounts of aid that have led to overcompensation.

Please note that the review of support will be carried out at the level of individual installations only in the cases of aid cumulation. With respect to installations that receive support only in the form of the feed-in tariff or green bonus, the authorities, and in the case of doubt, the Energy Regulatory Office, will generally examine the correctness of assumptions or cost factors used to determine the amount of the feed-in tariff or the green bonus. No review will be carried out at the level of individual installations. However, it should be assumed that, when assessing the cost factors, the authorities will take into account the data that the installation operators obtained to calculate their capital expenditures.

If, contrary to the opinion expressed by the Czech constitutional court and the European Commission, we continue to assume that the legitimate expectations of the operators of the existing installations are protected, it should be concluded that the publication of the commitment to introducing a review mechanism and to create a legal framework allowing, where necessary, the recouping of overcompensation has compromised the principle of protection of legitimate expectations at least for future investors.  It should now be assumed that if the review reveals that the level of granted support results in overcompensation (despite the solar duty), the Czech Republic will initiate further measures to recoup the overcompensation.

At the end of the decision document, the European Commission analyses the submissions made by 10 investors alleging violations of the Energy Charter Treaty and the bilateral investment treaty between Germany and the Czech Republic. Hardly surprisingly, the European Commission is again of the opinion that foreign investors can invoke neither the Energy Charter Treaty nor investment treaties signed between EU member states and that any arbitral awards would not be enforceable.