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C O N F I D E N T I A L SECTION 01 OF 03 PRAGUE 000115 
 
SIPDIS 
 
E.O. 12958: DECL: 02/23/2020 
TAGS: TRGY ENRG BTIO PREL TNGD BEXP EZ
SUBJECT: FEELING THE BURN: RENEWABLES TARGETS AND SOLAR 
INCENTIVES 
 
Classified By: CDA Mary Thompson-Jones for reasons 1.4 (b) and (d) 
 
¶1. (C) Summary: The Czech government's response to EU-set 
targets for increased use of renewable energy sources (RES) 
to meet electricity needs has been lackluster and expensive. 
Renewables' share in electricity consumption increased last 
year mainly due to a recession-driven decrease in total 
electricity consumption, and RES still only account for a 
small portion of total electricity consumed.  A sudden 
reduction in the cost of solar equipment has led to an 
exponential growth in solar energy generation, rendering the 
current subsidy system unsustainable.  Solar plants continue 
to increase in number, despite being the least financially 
efficient energy source in the Czech Republic.  Both national 
and local authorities remain suspicious of renewables.  The 
Czech Republic is unlikely to meet its EU-mandated RES 
targets without a change in public attitude and significant 
reworking of its RES subsidy policy.  End Summary. 
 
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Mostly Coal, but Renewables are on the Rise 
---------- 
 
¶2. (SBU)  Coal accounts for roughly 50 percent of the total 
Czech energy supply and around 60 percent of electricity 
generation.  The remaining portion of electricity comes 
primarily from nuclear power (about 32 percent) with RES 
composing just over 5 percent (as of the end of 2008). 
Within the realm of RES, hydroelectric power plants dominate 
production (54 percent of RES, 2.4 percent of total 
electricity production), followed by biomass (1.4 percent of 
total electricity), then biogas and wind power (about 0.3 
percent of total electricity each), and finally photovoltaic 
or solar energy, composing a mere 0.02 percent of electricity 
generation in 2008.  Past proposals to change the Czech 
energy and electricity composition have been aimed primarily 
at energy modernization and security, namely increased 
reliance on nuclear energy, reduced reliance on coal, and 
increased access to non-Russian natural gas sources. 
 
¶3. (SBU) Increased investment in RES in the Czech Republic 
(CR) has come largely in response to EU directives intended 
to lower greenhouse gas emissions and promote RES.  The CR 
faces EU-set mandatory targets of 8 percent reliance on RES 
for gross electricity consumption by 2010 and 13 percent by 
¶2020.  While an official Czech Industry and Trade Ministry 
report called the 2010 target "overly ambitious," some 
officials still believe it to be feasible.  The share of 
renewable energy in electricity consumption has risen 
steadily (albeit modestly) over the past five years from 4.0 
percent in 2004 to 5.2 percent in 2008. 
 
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Incentives for RES Producers 
---------- 
 
¶4. (SBU) In 2005, the CR instituted a series of incentives 
(which are still in place) to encourage investment in RES 
technology and production of energy from RES.  In addition to 
the guarantee that the relevant regional distribution company 
purchase energy produced from RES, the law stipulates that 
ancillary costs of RES energy production be passed on to the 
consumer via higher energy prices, rather than reduce RES 
company profit margins.  Even more significant, producers can 
choose between receiving green bonuses (an amount paid to the 
supplier above the market price of electricity) or feed-in 
tariffs (fixed minimum purchase prices for energy supplied). 
The central Energy Regulatory Office sets the latter, and the 
law guarantees that the fixed minimum price not drop more 
than five percent year-on-year.  According to Industry and 
Trade Ministry Renewable Energy Department Head Ondrej 
Tomsej, the feed-in tariffs are significantly more popular 
among investors.  Since 2005, producers have also been 
eligible for additional, specific subsidies offered through 
different programs by the Ministry of Industry and Trade, the 
Environment Ministry, and EU structural funds. 
 
¶5. (SBU) Incentives succeeded in stimulating construction and 
expansion of facilities harnessing biomass, photovoltaics, 
biogas, and wind capacity.  The share of gross electricity 
consumption derived from RES increased from 4.74 percent in 
2007 to 5.18 percent in 2008. Unofficial Industry and Trade 
Ministry estimates put RES share of electricity at 6.8 
percent in 2009, though according to Tomsej, most of the 
increase is attributable to a drop in energy consumption 
caused by the economic recession.  In 2009 the Czech economy 
contracted 4.2 percent and energy consumption fell about 4.8 
percent. Among the RES, photovoltaic electricity production 
showed the most dramatic rise (514 percent), but still only 
accounted for about 0.02 percent of gross electricity 
 
PRAGUE 00000115  002 OF 003 
 
 
consumption in 2008 and an estimated 0.13 percent in 2009. 
 
¶6. (C) According to energy expert Bretislav Dancak, the Czech 
energy mix is largely unaffected by these developments, and 
is unlikely to change significantly in the future.  Dancak 
dismissed RES incentives as a government effort to "look 
busy" for the EU; furthermore the renewables industry will 
not flourish in the CR because CEZ, the semi-state owned 
electricity company with a notoriously heavy hand in Czech 
politics, has no vested interest in its success.  Michal 
Janecek, owner of one of the largest solar plants in the 
Czech Republic and Chairman of the Czech Wind Energy 
Association, echoed Dancak's skepticism of the government's 
commitment.  He added that the CSSD-led government passed 
legislation in 2005 intended to support growth in the 
renewables sector.  When the ODS government took over in 
2006, however, momentum for renewable energy growth decreased 
considerably and the support on the books did not translate 
into support in practice, but rather hostility towards 
renewables.  The Fisher-led, interim government of the past 
ten months, according to Janecek, provided a neutral space 
for the solar industry to "boom" unhindered. 
 
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Why Solar? 
---------- 
 
¶7. (SBU) The number of solar power plants grew more than 
tenfold in the CR over the last two years.  As of November 1, 
2009, there are 3,136 solar power plants in the CR with a 
total output, according to the Ecological Alternatives 
League, of over 133 megawatts.  Experts attribute the 
precipitous increase in solar plant construction and 
investment to the confluence of high, fixed solar power rates 
and a large drop in the cost of photovoltaic panels.  A 
change in Spain's solar energy policy in 2008, for instance, 
led to the availability of solar panels at "dumping" prices, 
according to Janecek.  Daniel Kunz, CEO of leading renewable 
energy company Energy 21, told press that the payback period 
for solar power plants has shortened to 8-10 years, now that 
technology costs have fallen 40 percent since 2007, and there 
has been no commensurate purchase price adjustment.  The 
result has been a rush of investors from the wind sector to 
the solar sector, as well as hundreds of new investors from 
other industries. 
 
¶8. (SBU) Other major RES each face unique obstacles to 
growth.  The CR has already harnessed the majority of its 
hydroelectric potential, leaving little room for growth 
regardless of the incentives.  Electricity produced from 
biomass saw a 20 percent increase in 2008.  However, most 
energy produced by biomass is harnessed for heat rather than 
electricity.  In addition, while policy-makers believe that 
biomass holds the greatest potential for expansion in the CR, 
development of biomass capacity is still not economically 
attractive even with the current incentives. 
 
¶9. (C) Wind energy production has increased as a result of 
the government incentives, however experts believe its 
continued growth potential to be limited.  Regional 
governments also often object to the construction of wind 
turbines in their districts, citing their visual and noise 
implications.  In addition, Industry and Trade Ministry 
officers have claimed that there is "insufficient" wind. 
Critics of wind energy also explain that managing the spikes 
and dips of energy generated by wind power is both difficult 
and expensive for grid operation. 
 
¶10. (C) Wind farm operator KV Venti's CEO, David Jozevsky, 
calls these claims "nonsense."  Mr. Jozevsky, whose company 
operates three wind facilities in the Czech Republic and a 
handful abroad, told us that the central government is 
attempting to avoid confrontation with regional governments 
on this topic, and do not themselves want wind turbines 
erected near their out-of-Prague, pastoral summerhomes. 
Janecek told us that local government "obstructionism" led to 
a five to six year period between conception and operation of 
wind plants (as opposed to the twelve to eighteen month 
period for solar plants).  Janecek partly attributes the 
wind-to-solar brain drain of the last two years to this undue 
bureaucracy. 
 
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Sustainable Energy Policy "Unsustainable" 
---------- 
 
¶11. (U) On November 30, Roman Polak of the Energy Regulatory 
Office (ERU) told the press that photovoltaics is one of the 
least effective electricity sources, but receives some 40 
percent of the support designated for all RES.  However, with 
 
PRAGUE 00000115  003 OF 003 
 
 
the ostensible money-back-guarantee on solar plant 
investment, facilities continue to crop up around the CR, 
with little effect on overall energy supply.  Critics of 
solar power note that the price paid for solar energy is 14 
times the price of energy from coal and nuclear and 4.5 times 
the cost of wind power.  Industry and Trade Minister Vladimir 
Tolovsky announced that the enormous rise in subsidized 
energy production, particularly solar energy, could drive up 
the residential price of electricity 19 percent by 2012.  He 
warned that industrial energy cost could rise 50 percent and 
repel potential foreign investment. 
 
¶12. (C) Politicians, analysts, and journalists are demanding 
renewables policy reform, calling the current system 
financially unsustainable.  The leading national economic 
newspaper's energy reporter told us that even the main Czech 
photovoltaic trade association accepts that reform is 
necessary, though the details will require further 
discussion.  On February 8, the Czech Cabinet released a list 
of short-term priorities, including passage of reform 
legislation during the first half of 2010 to reduce solar 
subsidies.  Mr. Tomsej also told us that the Industry and 
Trade Ministry submitted a legislative proposal to the 
government to allow the fixed minimum price to drop by more 
than 5 percent, and expects that the Chamber of Deputies will 
give this proposal a second reading this spring. 
 
¶13. (C) Technical concerns exist as well.  The Czech 
electricity grid operator (CEPS) warned in early February 
that the additional grid connections required to service the 
thousands of low-yield plants have exceeded the number 
consistent with the safe and reliable operation of the power 
grid.  On February 16, Czech electricity distribution 
companies stopped accepting new applications to join the 
grid. Janecek told us that government warnings of blackouts 
due to an overloaded grid are nothing more than 
fear-mongering and an attempt to avoid the appearance of 
welching on its commitment to subsidize clean energy. 
According to Janecek, the government announced last year that 
the grid could accommodate 2000 megawatts of new connections; 
now, only 600 megawatts later, the grid is allegedly full. 
 
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Paying More for the Same Pie 
---------- 
 
¶14. (C)  Comment: Czech efforts to increase reliance on RES 
for electricity consumption (whether sincere or not) have 
produced only modest changes to the national energy mix, but 
could cause dramatic increases to energy cost.  While 
investors in solar would likely perceive a sudden drop in 
fixed purchase prices as a betrayal, the government, the 
consumer, and the investment climate cannot afford the 
alternative: a dramatic rise in energy prices for everyone. 
Alleged grid problems will help to justify discontinuation of 
new licenses, though, for legal reasons, the current 
incentives will probably have to be grandfathered for 
existing producers.  However, if the Czech Republic is 
serious about increasing its reliance on renewable energy, it 
will need to develop a new structure that encourages 
investment in more promising technologies such as biomass. 
End Comment. 
Thompson-Jones