Excess compensation monitoring rules submitted to government

The Ministry of Industry and Trade published a draft amendment to the Act on Renewable Energy Sources. One of its main objectives is the introduction of a system of monitoring the provision of excess aid/support for the production of energy from renewable sources (i.e. excess compensation monitoring).

Support of production of energy from renewable sources is provided in compliance with the European Commission’s decisions on state aid notifications, based on which individual categories of aid are declared compatible with the EU internal market. These decisions also give rise to certain obligations of the Czech Republic. In the case of energy produced from renewable sources commissioned in the 2006 - 2015 period, the Czech Republic has undertaken to adopt measures to review the reasonability of operational aid.  

The key review tool in this respect is the monitoring of the overall level of aid. The basic procedure should consist of three phases: the first phase will involve a sector examination; the second, a voluntary application of measures against excess compensation (these measures can be selected by the producer where the sector examination determines a risk of excess compensation); and the third phase will involve an individual inspection of the producer’s electricity production plant. The decisive indicator for evaluating the reasonability of provided aid is the internal rate of return (IRR) of an investment. Its limit has been set at 8.4% for non-fuel sources (sun, wind, water) and at 10.6% for fuel sources (biogas, biomass).

The Ministry of Industry and Trade’s sector examination, carried out based on data from the financial statements of producers and the market operator, will review the IRR of investments in the production of energy from renewable sources. Individual examinations will be performed ten years after the first day of the calendar year following the date the electricity source was put into operation. Where a risk of excess support is identified, the producer may voluntarily choose measures to discontinue operational support from the twelfth year after putting the electricity source into operation.

If the producer does not adopt the above voluntary measures, the State Energy Inspection will carry out an individual inspection at the source, evaluating the reasonability of aid provided, with the primary objective not to grant unreasonable aid, taking into account the internal rate of return ascertained. Where excess compensation is identified in respect of the aid already granted, the provision of aid should be discontinued and any potential excess aid refunded. Where a risk of excess compensation is identified in respect of future aid, the maximum volume of electricity that will be supported in the future should be determined.

The draft amendment’s wording is likely to change after discussion by government and parliament. It is expected that changes will mostly concern the different IRR set for two categories of sources, which is the most criticised issue of the entire amendment. We should not forget that the after-effects of the changes made by parliament to the legislation regulating renewable sources, which had resulted in excess compensation and a solar energy boom, are now actually being remedied by the above draft amendment to the Act on Renewable Energy Sources.