By SEAN CARNEY
PRAGUE—As global leaders assess the results of the United Nations summit on tackling global warming in the Mexican resort city of Cancun, which ended Friday, a political and legal mess is unfolding following the Czech Republic's efforts to reduce its carbon footprint.
From January 2011, this central European country of 10 million will subsidize zero-emission, photovoltaic electricity production at any solar installation that is connected to the country's grid by the end of this year.
The move is fully in line with the European Union's pledge to reduce greenhouse gas emissions 20% by 2020 from 1990 levels. The build-up of solar-generation capacity should also reduce Czech dependence on fossil fuels—more than 50% of the country's power is currently generated by coal. This lofty, eco-friendly goal comes, however, at a cost to Czech consumers.
To spur investment in zero-emission solar power production, which last year accounted for less than 1% of Czech electricity generation, a 2005 law created generous subsidies. These now threaten, however, to increase electricity bills by as much as 20%, a shock to consumers, especially since the market price of electricity has fallen by around 20% over the past two years.
There are also fears the price rises, which apply to all users, commercial as well as domestic, will damp Czech economic growth.
Under the subsidy regime, solar power producers are to get 12,400 koruna (€494.4) per megawatt hour on top of the market price for electricity sold to the grid. Czech prices currently are around the European average of €50 per megawatt hour. Electricity distributors are obliged for the next 20 years to purchase all power generated through photovoltaic installations at prices including the subsidy. Those distributors say they have no choice but to pass along the higher prices. The extra cost of buying in solar power will be met by electrical power consumers via "environmental surcharges" on their bills.
To limit the price shock, the government decided to create a new windfall tax of 26% on solar profits, which will be imposed for three years. Revenue from the tax will be used to ameliorate the price rises, holding them to 5% a year and giving consumers time to adjust to the increases.
But investors in solar power are outraged by the government's proposed tax, saying it is retroactive and therefore illegal. If enacted as planned on Jan. 1, the new tax would come after investments had been made, power plants built and payment terms with banks settled.
"We definitely have to take action. We'll have to provide more equity into the project, which creates a large problem; we'll have to subsidize it from our other businesses and resources," said Michal Gartner, chairman of Photon Energy AS.
Photon Energy was founded in 2008 by Czech and international investors and has since invested almost 1.3 billion koruna ($68.4 million) to build 15 megawatts of photovoltaic capacity in the country, making it a midsize player in the sector.
"We need to do everything we can to make sure we're adequately compensated," says Mr. Gartner, adding that the company, a member of the European Photovoltaic Industry Association, will probably take legal action together with others in the field.
The local Czech Photovoltaic Association is leading the legal rebuttal and said challenges will come via complaints to the Czech Constitutional Court and the European Union in Brussels, as well as via international arbitration.
"To retroactively change things is reckless and irresponsible behavior from any government," Mr. Gartner says. "It damages shareholders and it's a very, very bad signal being sent to investors of all types."
Martin Kocourek, Czech trade minister, last Wednesday played down the risk of legal challenges and said governments can set taxes as needed. If the tax bill isn't passed into law and power prices rise, both Czech companies and foreign entities operating here will lose their competitiveness, he said.
"[Politicians] should focus on keeping the Czech economy competitive" and not be overly concerned with theoretical legal issues, Mr. Kocourek said.
The Czech problem has been exacerbated by the fall in the price of new photovoltaic equipment. The size of the subsidy was based on equipment costs in 2008 but since that time they have fallen by almost 30%. The government subsidy, however, remains unchanged.
Steady subsidies coupled with lower costs have attracted much more interest than politicians had foreseen, and installed photovoltaic capacity in the Czech Republic mushroomed 15 times since the beginning of 2009 as investors rush into the segment.
The Czech subsidy is even higher than Spain's €450 per megawatt hour subsidy implemented in 2008, which at the time was the world's most generous offer. Weighed down by fiscal debt and contracting economic growth, the Spanish government has since slashed its subsidies and solar farms authorized to generate power in the fourth quarter will get a subsidy of €259 per megawatt hour.
At the start of last year, the Czech Republic had a mere 65.7 megawatts of installed photovoltaic capacity, but by the end of this year when the window for lush subsidies closes, installed capacity will be 1,600 megawatts, the Czech energy regulator said.
The solar boom contributed significantly to Czech third-quarter gross domestic product growth of 2.8%, as fixed capital investments driven by the solar build-up soared by 14.4%.
Write to Sean Carney at sean.carney@dowjones.com
Monday, 13 December 2010
UK must shake off the dominance of the energy giants
Any move to a sustainable future is unlikely while it is not in the interests of the energy companies to deliver more efficiently
Catherine Mitchell guardian.co.uk, Monday 13 December 2010 08.00 GMT
After more than 25 years working on energy issues, I have recently come to an extraordinary personal realisation: there is very little need to have heating bills at all. Since refurbishing my coastguard's cottage in July, I have – to my total surprise – been able to more or less rely on solar heating for warm water and a wood burning stove, occasionally, for heating.
Now, my house faces south and I have triple-glazed windows, van loads of insulation under my floors and in my roof, cavity wall insulation and passive lighting. I know not every home can be like this, but I've cut my energy use by 80-90%, which is the sort of ambition needed nationally if the UK is to meet the carbon emission cuts set in its climate change law, and it is comfortable, warm and dry.
This week, the government is expected to publish proposals for what it says must be a revolution in the electricity supply market, to boost the UK's tiny levels of renewable energy. It follows last week's "green deal" bill, which aims to banish the upfront cost and hassle of refurbishing the UK's leaky homes.
The government is right that our business-as-usual energy policy – one of the most liberal energy markets in the world – has to be abandoned. Sadly, the proposed electricity market reforms and the green deal do not include anything that will move the UK forward in anything other than an incremental manner. At the heart of the problem is a seasonally appropriate difficulty: asking turkeys to vote for Christmas.
It is simply not in the interests of the handful of dominant energy companies and their shareholders to dramatically transform the energy system, whether on the supply or demand side. In particular, an increase in the energy efficiency of buildings will undermine a company's future sales and profits. Only when the government confronts head-on the interests in maintaining the system largely as it is, will the energy system change.
Energy companies sell energy or services and have to comply with various rules and incentives. The rules and incentives are being tweaked so that energy companies can make more money from low-carbon energy supply and reducing energy demand. But reducing the UK's greenhouse gas emissions by 60% by 2030 means developing a completely different energy system. Energy companies doing what they can within the current energy system is not nearly enough.
The issues of supply, demand and energy transmission are highly complex. For example, building new low-carbon power plants, such as offshore wind farms, nuclear power stations and clean coal plants, is laden with many billions of pounds of upfront cost. It is hard for the big energy companies to raise this capital, given that the payback, via customer bills, is over decades.
But cutting total energy demand makes it all far simpler. If less energy is used, then fewer capital-intensive plants need to be built. This in turn leads to less need for new transmission cables and connectors. Thus, a central policy should be to reduce energy demand. In theory, it already is: the practice is very different.
A typical energy policy argument is that an energy company has to move from selling energy units to providing services. In this way, it is argued, the loss they take from reduced energy sales can be made up through new profits or new services. But, thinking of my cottage, this simply is not the case. I paid for my energy-efficient house upfront. I don't need any services and my bills are now minute. From the perspective of an energy company which makes most of its money from supplying energy, installing the equivalent energy-efficiency measures I had in my house into another house will effectively get rid of a customer. But this is what is required.
The current key executors of government energy policy, including energy-efficiency programmes, are the energy supply companies. I simply don't believe, however responsible they are, that they are able to implement serious energy-efficient programmes. They have not done so in the past, despite many policy initiatives, and the new green deal does not force them to make more than incremental improvements.
In parallel, the consultation on electricity market reform is a missed opportunity. Various ideas have been put forward, but these again are about incremental change to the same system. The proposed market reforms leave market and network rules and incentives more or less the same, thereby enabling energy companies to largely continue what they are currently doing if they want to. Additional proposals, for example for long-term contracts for low-carbon energy and carbon floor prices, are all major sticking plasters on the current market design rather than changing the energy market to deliver a new type of energy system.
So what's the answer? We need regulated obligations on the scale of the transition from town gas to natural gas. Tendering for street-by-street or area-by-area contracts to make homes energy efficient is cost effective, but crucially creates a mechanism for new companies to enter the market, thereby potentially diluting the dominance of the current energy companies.
Can it work? I lived in Brixton during the riots of the 1980s and the subsequent Scarman Report identified poor housing as an important factor. It recommended creating Aim areas (Areas for Improvement and Modernisation), which were subsequently put in place by the Greater London Council. Result? Areas of Brixton were systematically brought up to a decent standard.
No one is saying that transforming how we generate and use electricity as we move to a sustainable future is easy. However, government policy which ignores the reality of economic interests, thereby tacitly accepting that energy companies will not try too hard to reduce energy consumption, betrays a government which continues to hope against hope that it doesn't have to make any difficult decisions which upset anyone. Not only is this a sad cop out, but if it confronted economic interests, particularly on the demand side, then it would find the supply side and security questions would become a lot easier and cheaper to solve.
• Catherine Mitchell is professor of energy policy at the University of Exeter.
Catherine Mitchell guardian.co.uk, Monday 13 December 2010 08.00 GMT
After more than 25 years working on energy issues, I have recently come to an extraordinary personal realisation: there is very little need to have heating bills at all. Since refurbishing my coastguard's cottage in July, I have – to my total surprise – been able to more or less rely on solar heating for warm water and a wood burning stove, occasionally, for heating.
Now, my house faces south and I have triple-glazed windows, van loads of insulation under my floors and in my roof, cavity wall insulation and passive lighting. I know not every home can be like this, but I've cut my energy use by 80-90%, which is the sort of ambition needed nationally if the UK is to meet the carbon emission cuts set in its climate change law, and it is comfortable, warm and dry.
This week, the government is expected to publish proposals for what it says must be a revolution in the electricity supply market, to boost the UK's tiny levels of renewable energy. It follows last week's "green deal" bill, which aims to banish the upfront cost and hassle of refurbishing the UK's leaky homes.
The government is right that our business-as-usual energy policy – one of the most liberal energy markets in the world – has to be abandoned. Sadly, the proposed electricity market reforms and the green deal do not include anything that will move the UK forward in anything other than an incremental manner. At the heart of the problem is a seasonally appropriate difficulty: asking turkeys to vote for Christmas.
It is simply not in the interests of the handful of dominant energy companies and their shareholders to dramatically transform the energy system, whether on the supply or demand side. In particular, an increase in the energy efficiency of buildings will undermine a company's future sales and profits. Only when the government confronts head-on the interests in maintaining the system largely as it is, will the energy system change.
Energy companies sell energy or services and have to comply with various rules and incentives. The rules and incentives are being tweaked so that energy companies can make more money from low-carbon energy supply and reducing energy demand. But reducing the UK's greenhouse gas emissions by 60% by 2030 means developing a completely different energy system. Energy companies doing what they can within the current energy system is not nearly enough.
The issues of supply, demand and energy transmission are highly complex. For example, building new low-carbon power plants, such as offshore wind farms, nuclear power stations and clean coal plants, is laden with many billions of pounds of upfront cost. It is hard for the big energy companies to raise this capital, given that the payback, via customer bills, is over decades.
But cutting total energy demand makes it all far simpler. If less energy is used, then fewer capital-intensive plants need to be built. This in turn leads to less need for new transmission cables and connectors. Thus, a central policy should be to reduce energy demand. In theory, it already is: the practice is very different.
A typical energy policy argument is that an energy company has to move from selling energy units to providing services. In this way, it is argued, the loss they take from reduced energy sales can be made up through new profits or new services. But, thinking of my cottage, this simply is not the case. I paid for my energy-efficient house upfront. I don't need any services and my bills are now minute. From the perspective of an energy company which makes most of its money from supplying energy, installing the equivalent energy-efficiency measures I had in my house into another house will effectively get rid of a customer. But this is what is required.
The current key executors of government energy policy, including energy-efficiency programmes, are the energy supply companies. I simply don't believe, however responsible they are, that they are able to implement serious energy-efficient programmes. They have not done so in the past, despite many policy initiatives, and the new green deal does not force them to make more than incremental improvements.
In parallel, the consultation on electricity market reform is a missed opportunity. Various ideas have been put forward, but these again are about incremental change to the same system. The proposed market reforms leave market and network rules and incentives more or less the same, thereby enabling energy companies to largely continue what they are currently doing if they want to. Additional proposals, for example for long-term contracts for low-carbon energy and carbon floor prices, are all major sticking plasters on the current market design rather than changing the energy market to deliver a new type of energy system.
So what's the answer? We need regulated obligations on the scale of the transition from town gas to natural gas. Tendering for street-by-street or area-by-area contracts to make homes energy efficient is cost effective, but crucially creates a mechanism for new companies to enter the market, thereby potentially diluting the dominance of the current energy companies.
Can it work? I lived in Brixton during the riots of the 1980s and the subsequent Scarman Report identified poor housing as an important factor. It recommended creating Aim areas (Areas for Improvement and Modernisation), which were subsequently put in place by the Greater London Council. Result? Areas of Brixton were systematically brought up to a decent standard.
No one is saying that transforming how we generate and use electricity as we move to a sustainable future is easy. However, government policy which ignores the reality of economic interests, thereby tacitly accepting that energy companies will not try too hard to reduce energy consumption, betrays a government which continues to hope against hope that it doesn't have to make any difficult decisions which upset anyone. Not only is this a sad cop out, but if it confronted economic interests, particularly on the demand side, then it would find the supply side and security questions would become a lot easier and cheaper to solve.
• Catherine Mitchell is professor of energy policy at the University of Exeter.
Cancún agreement rescues UN credibility but falls short of saving planet
• $100bn climate fund likely to come from private sector
• Limited successes include aid for preventing deforestation
Suzanne Goldenberg, US environment correspondent guardian.co.uk, Sunday 12 December 2010 21.03 GMT
The modest deal wrangled out by the 200 countries meeting at the Mexican resort of Cancún may have done more to save a dysfunctional UN negotiating process from collapse than protect the planet against climate change, analysts said today.
"The UN climate talks are off the life-support machine," said Tim Gore of Oxfam. "The agreement falls short of the emissions cuts that are needed, but it lays out a path to move towards them."
The agreement produced in the early hours of Saturday reinforces the promise made by rich countries last year to mobilise billions for a green climate fund to help poor countries defend themselves against climate damage.
It was not clear how the funds would be raised. At Copenhagen last year, rich countries agreed to raise $100bn (£63bn) a year by 2020 for the fund. However, US officials said at the weekend that most of this would come from the private sector.
Cancún also produced a victory for forest campaigners who were looking to the talks to produce a system of incentives to prevent the destruction of tropical rainforests in countries such as Brazil, Congo and Indonesia.
Under the deal, developing countries will receive aid for not burning or logging forests. Deforestation produces about 15% of the world's carbon emissions.
But with a widening divide between rich and poor countries over the architecture of a global agreement, Patricia Espinosa, the Mexican foreign minister credited with preventing a collapse of the two-week talks, told negotiators the result was "the best we could achieve at this point in a long process".
Negotiators, clean-energy business associations and campaign groups warned that Cancún's most significant result was putting off the tough decisions until next year's UN summit in South Africa.
"The outcome wasn't enough to save the planet," said Alden Meyer of the Union of Concerned Scientists. "But it did restore the credibility of the United Nations as a forum where progress can be made."
The Global Wind Energy Council said Cancún was only counted a success because of the extremely low expectations going into the talks. "None of the fundamental political, legal and architectural issues that still must be resolved in order to establish an effective global climate regime have been solved," it said.
Michael Levi, a fellow at the Council on Foreign Relations, warned that the failure to resolve difficult issues at Cancún – especially over the future of the Kyoto protocol – makes the risks even higher next year.
He wrote on his blog: "The Cancún result punts the dispute to next year's talks. But that solution will not be available again: the current Kyoto commitments expire at the end of 2012, making the next UN conference the last practical opportunity to seal a new set of Kyoto pledges."
But negotiators did not have many options. After the failure of the Copenhagen summit last year, a breakdown at Cancún would have condemned the 20-year climate negotiations, Connie Hedegaard, the European Union's climate commissioner, told reporters on Saturday.
In the runup to Cancún, negotiators acknowledged there was no prospect of reaching a new treaty. They hoped instead for progress on the "building blocks" to a deal, such as detailed agreements on climate finance, preventing deforestation, enabling technology transfer and accounting for emissions cuts by emerging economies such as China and India.
However, even those modest ambitions were put in jeopardy when Japan and then Russia announced they would not sign on to a second term of the Kyoto protocol unless the world's big emitters, China and the US, were also legally bound to action.
Campaign groups such as Greenpeace also blamed the US for taking a hard line at the talks – partly for fear of being accused of giving up too much to China by Republicans at home.
Despite those tensions, however, America and China avoided the mood of confrontation that undermined the talks at Copenhagen last year.
• Limited successes include aid for preventing deforestation
Suzanne Goldenberg, US environment correspondent guardian.co.uk, Sunday 12 December 2010 21.03 GMT
The modest deal wrangled out by the 200 countries meeting at the Mexican resort of Cancún may have done more to save a dysfunctional UN negotiating process from collapse than protect the planet against climate change, analysts said today.
"The UN climate talks are off the life-support machine," said Tim Gore of Oxfam. "The agreement falls short of the emissions cuts that are needed, but it lays out a path to move towards them."
The agreement produced in the early hours of Saturday reinforces the promise made by rich countries last year to mobilise billions for a green climate fund to help poor countries defend themselves against climate damage.
It was not clear how the funds would be raised. At Copenhagen last year, rich countries agreed to raise $100bn (£63bn) a year by 2020 for the fund. However, US officials said at the weekend that most of this would come from the private sector.
Cancún also produced a victory for forest campaigners who were looking to the talks to produce a system of incentives to prevent the destruction of tropical rainforests in countries such as Brazil, Congo and Indonesia.
Under the deal, developing countries will receive aid for not burning or logging forests. Deforestation produces about 15% of the world's carbon emissions.
But with a widening divide between rich and poor countries over the architecture of a global agreement, Patricia Espinosa, the Mexican foreign minister credited with preventing a collapse of the two-week talks, told negotiators the result was "the best we could achieve at this point in a long process".
Negotiators, clean-energy business associations and campaign groups warned that Cancún's most significant result was putting off the tough decisions until next year's UN summit in South Africa.
"The outcome wasn't enough to save the planet," said Alden Meyer of the Union of Concerned Scientists. "But it did restore the credibility of the United Nations as a forum where progress can be made."
The Global Wind Energy Council said Cancún was only counted a success because of the extremely low expectations going into the talks. "None of the fundamental political, legal and architectural issues that still must be resolved in order to establish an effective global climate regime have been solved," it said.
Michael Levi, a fellow at the Council on Foreign Relations, warned that the failure to resolve difficult issues at Cancún – especially over the future of the Kyoto protocol – makes the risks even higher next year.
He wrote on his blog: "The Cancún result punts the dispute to next year's talks. But that solution will not be available again: the current Kyoto commitments expire at the end of 2012, making the next UN conference the last practical opportunity to seal a new set of Kyoto pledges."
But negotiators did not have many options. After the failure of the Copenhagen summit last year, a breakdown at Cancún would have condemned the 20-year climate negotiations, Connie Hedegaard, the European Union's climate commissioner, told reporters on Saturday.
In the runup to Cancún, negotiators acknowledged there was no prospect of reaching a new treaty. They hoped instead for progress on the "building blocks" to a deal, such as detailed agreements on climate finance, preventing deforestation, enabling technology transfer and accounting for emissions cuts by emerging economies such as China and India.
However, even those modest ambitions were put in jeopardy when Japan and then Russia announced they would not sign on to a second term of the Kyoto protocol unless the world's big emitters, China and the US, were also legally bound to action.
Campaign groups such as Greenpeace also blamed the US for taking a hard line at the talks – partly for fear of being accused of giving up too much to China by Republicans at home.
Despite those tensions, however, America and China avoided the mood of confrontation that undermined the talks at Copenhagen last year.