(Repeats story published late on Tuesday)
* Czechs eye big cut in solar incentives after boom
* Investors look for industry shakeout
* Regulators warn grid stability at risk
By Michael Kahn and Jan Korselt
PRAGUE, March 16 (Reuters) - The Czech Republic does not
spring to mind as one of Europe's hot spots, yet an over-used
subsidy scheme has created a bonanza for solar power that has
ignited fears of a spike in energy prices and grid instability.
Lawmakers are now gearing up to cut the country's generous
solar incentives, which investors say is needed to cool off the
boom that made the Czechs the third-largest builders of solar
capacity behind Germany and Italy last year.
This year, new projects will dwarf those of last year before
cuts in feed-in tariffs -- which are currently up to 469 euros
per megawatt hour -- push some investors further south to
sunnier places than the central Euroepan Czech Republic, such as
Bulgaria, investors said.
The generous tariffs have, together with falling prices of
solar panels, led to a spike in returns in parts of the sector
to around 30 percent per year.
"The Czech Republic is overheated at the moment," Peter
Richards of private equity firm 3TS Capital Partners, told a
recent renewables conference in Prague.
"It is likely a race to connect to the grid in 2010. It was
quite easy to be a developer in 2008 and 2009 but those days are
gone because of government regulation and uncertainty."
Feed-in tariffs -- prices utilities must pay to generators
of renewable energy -- will be the solar sector's lifeblood
until grid parity, the point at which renewables cost the same
as fossil fuel-based power, is reached.
PRICE CUTS AHEAD
Under current law, the regulator can cut the feed-in tariff
by 5 percent annually for new plants, and has to guarantee that
tariff for 20 years.
The lower house of parliament will on Wednesday cast a final
vote on a proposal that would give regulators the freedom to
make bigger cuts when investor returns hit a certain level, or
another that would raise the limit on cuts for new projects to
25 percent every year.
"Right now, we have a market that is probably not
functioning in a very rational way," said Michael White,
managing partner at Prague-based Enercap, which invests in
renewables in the region.
"You have a lot of people viewing the solar market as a way
to lock in high yield without debt."
The country had registered photovoltaic plants with a
combined capacity of 490 megawatts at the beginning of March,
compared to 54 megawatts in January 2009, but industry officials
have said the figure could rise to 1,000-2,000 megawatts this
year.
Global solar stocks plunged in January when it emerged the
government in Germany -- the world's largest solar market --
planned to make additional cuts to the tariffs, arguing the
industry was overly subsidised and needed to become competitive
faster. [] [] []
On Monday, however, Germany's ruling coalition agreed to
delay the cuts in solar power incentives by two months.
INVESTORS SEEK SMALLER REDUCTION
The Czech photovoltaic association has called for the
reduction to be around 15 percent, warning that anything more
could cripple the industry.
Enercap's White believes investors can still make money with
a steeper cut.
The current rate in the Czech Republic is 12.25 crowns per
kilowatt hour (0.481 euro). This compares to the recenty reset
German tariff of EUR 0.39/kWh.
"A 25 percent reduction in the Czech tariff would be at EUR
0.36/kWh, so still above the German tariff but with similar
irradiation, should provide a return for investors which is
deemed attractive as panel prices are still declining," he said.
Daniel Kunz, chief executive at solar company Energy 21,
said the key for investors was for lawmakers to provide a
visible regulatory landscape in which to operate.
Apart from the new legislation, Czech investments may be
hampered by system operators who say the grid will become
overburdened by the erratic output from solar plants and
threatened to block new projects.
"Regulatory risk has increased in the past few months," Adam
Schwartzman, an investment officer at the International Finance
Corporation, the private sector lending arm of the World Bank
told a recent conference. "We will see significant pushback over
high tariffs in coming years."
(Reporting by Michael Kahn and Jan Korselt, Editing by Amanda
Cooper)
