Czech electricity companies face multi-billion crown bill for cushioning the solar power boom

Czech energy companies are in uproar over government moves to cushion the bill for a solar power boom in the country. Basically, the energy companies are bearing the brunt of frantic government moves to raise cash so that inflated electricity prices are not passed onto households and businesses. The power companies are livid, saying the government has not just moved the goalposts, it has changed the game.

Czech power companies, especially 70 percent state controlled giant ČEZ, have for the last decades or so had a pretty comfortable existence. Power prices have risen to catch up with those in Western Europe, profits soared and then there were massive windfall profits won from selling on free carbon emissions permits.

Now, though electricity companies are howling with anger and pain. They are on the receiving end of a government double whammy with the former bringer of those windfall profits, those emission allowances, now transformed into a multi-billion dollar headache.

Basically the government has decided to rob Peter, read the power companies, to pay Paul, read the rest of the population and business world, by slapping a tax on the emissions permits the companies thought they were going to get for free in 2011 and 2012 and making them buy large amounts of these emissions they thought they would get free in the years from 2013-2020.

This first step, with the tax likely to be set at 32 percent according to latest reports, will cost the electricity companies billions of crowns, the second tens of billions. Tomáš Sýkora is an analyst with the Prague-based stock brokerage Patria.

Tomáš Sýkora
“If the government decides they will have to pay for all these carbon credits, then ČEZ and the other electricity companies will have to find the money and it will amount to up to 50 billion crowns more for ČEZ in the period between 2013 and 2020.”

This is a massive hit. ČEZ itself has not commented on the proposal in public in deference to the government’s controlling stake. But analysts have said that big investments, such as the construction of two new reactors at the Temelín nuclear power plant, could be at risk.

Private companies are not so constrained. One power company boss accused the government of launching itself without warning headlong into chaotic and haphazard action. He said that the whole local energy landscape had been transformed in three days. And he has warned that planned, sometimes pollution reducing investments, will just be put off as the price of the government’s move.

In fact, a lot of confusion still surrounds the government moves over what taxes will be charged, whether heating companies will still get emissions allowances free and whether other power companies might still qualify for them.

Tomáš Sýkora says the government appears to have scrambled for a fast solution to the solar power problem and the consequences may be serious.

“The government is now trying to find money anywhere they can, anywhere that is connected with electricity prices somehow. And they are trying to do this quickly. And when you try to do something under time pressure it is not usually the best solution and this is what we now see.”

All in all, the solution to the solar power boom is casting a shadow over a lot of power companies that probably thought they were immune from such government action.