by Tim Gosling
16 March 2005
Environmental and economic concerns are taking a back seat to politics in the Czech government's thinking on renewable energy.
PRAGUE, Czech Republic--Eight percent of electricity production from renewable sources by the end of the decade: Aiming at this European-Union target, Czech lawmakers are likely to adopt measures to help invigorate renewable energy production in new energy legislation currently nearing a final vote.

The Czechs have a lot of work to do, despite doing a better job of exploiting renewables than some of its neighbors--estimates are that the country presently generates 3.5 percent of its electricity from renewables, compared to 2.5 percent in Poland and less than 1 percent in Hungary. Few predict that the target will actually be met, though. Investors are badly needed to harness the potential sources of renewable energy within the country. The new legislation intends to provide conditions to attract them. But will it attract the right investors to the right projects?

15-YEAR MONEY BACK GUARANTEE

One high-profile project has been in the cards for a while. Near Chomutov in northwestern Bohemia, Czech Venti, a partnership between Britain's Virtual Utility and the local concern Proventi, plans to erect at least 96 wind turbines in the Krusne Mountains at a cost of around 400 million euros.

The major source of support for renewable energy producers comes in the form of "feed-in tariffs": guaranteed prices producers receive for each kilowatt hour they feed into the distribution networks. These tariffs, set by the Czech Energy Regulation Office, have until now been reviewed yearly, making accurate investment planning impossible.

A vital measure within the proposed legislation will set the tariffs for 15 years. The levels of the tariffs are to be based on economic and technical calculations that correlate investment costs with projected revenues and are required to guarantee return of investment within the 15-year period. The feed-in tariff for wind power is expected to be set at 2.70 crowns ($0.12) per kilowatt hour: one of the highest rates offered for renewables, because of the high start-up costs involved.

Other large investors are watching the legislation closely. The country's dominant power company, CEZ, formerly state-owned and still largely under state influence, is waiting to see what final form the legislation takes, according to spokesman Ladislav Kriz. He says that if the legislation passes with very favorable conditions “as proposed,” then “CEZ will go into wind power." Industry insiders note that there are many others, foreign investors in particular, making inquiries about Czech wind power projects.

Attracting investors is one thing, though, and harnessing the country’s potential energy sources quite another.
FEEDING AN INEFFICIENT INDUSTRY

Imagine throwing an environmental energy consultant, an executive of a regional power giant, an environmental scientist, an energy industry consultant, and a couple of Czech technocrats into a small room to talk shop on renewable energy. We'd expect them to argue over a lot of things while agreeing on very few. That wind energy is entirely unsuitable for the Czech Republic would be one rare point of convergence. Statistics from the Ministry of Industry and Trade mark wind power as having the lowest economically viable potential of any renewable in the Czech Republic.

According to Radan Panacek of the Technology Center of the Czech Academy of Sciences, a wind of 7 meters per second is the minimum average speed necessary for efficient production of electricity. But only a tiny fraction of the Czech Republic's land area even reaches 6 meters per second, and the vast majority of the country sees a mere 3 meters per second.

There are currently 10 working wind farms in the country, predominantly located in the mountains on the northern borders. According to some energy experts, they are struggling to run at 10 percent capacity owing to poor wind conditions, inefficient management, and inadequate funding. Even so, another eight installations are under construction. All will qualify for feed-in tariffs.

Ladislav Pazdera, director of the Industry and Trade Ministry's eco-energy department, claims that the problem of unreliable wind hampers wind energy projects throughout inland Europe. He says that the Germans, who make more electricity from wind than any other country, run their installations at around 16 percent capacity.

Tomas Vorisek of Seven Energy Efficiency Center, a Prague renewable-energy consultancy, says that some calculations suggest that in the Czech Republic, "no more than 1 terawatt hour [1 billion kilowatt hours] can come from wind power, and it must be stressed that wind power is much more expensive" than other renewables in terms of investment and operating costs.

“From a strictly economic and power point of view, wind power is useless," is the even franker view of a source at the Industry Ministry, speaking off the record.
WHICH WAY DOES THE WIND BLOW?

So why are wind turbines continuing to pop up on Czech mountainsides? Opinion varies.

Some, including sources that have worked on the Czech Venti project, suggest that the issue is one of tokenism.

Compared with the alternatives, wind farms are seen as "sexy," they say. Hundreds of huge, futuristic windmills populating the mountains and mirroring the German wind farms just across the border would make a highly visible example of the Czech dedication to promoting renewable energy.
An added advantage could lie in the location of the projects. The Krusne Mountains where Czech Venti plan to build the country's biggest wind farm overlook the factories and open-pit coal mines of north Bohemia, an area hard hit by shrinking coal production in recent years. This extremely sensitive issue was exacerbated in 2000 when environmental concerns prompted limits on what coal deposits there were still to be exploited. During the communist era and into the 1990s, dozens of villages were razed to get at the coal underneath them. The equally controversial lifting of these barriers, as expected by many in the none-too-distant future, will help the area’s economy somewhat but prove no magic bullet. For the moment, the government is pumping huge funds into the region to support the jobless and promote industry there.

Czech Venti claims that Chomutov Wind Park will provide many jobs in construction and maintenance of the wind towers. Pazdera is candid in stating that from the ministry's point of view, “the social issues are definitely more important than the environmental concerns and pushing renewables."

Not all Krusne Mountain residents, though, are happy about wind farms. In a January referendum, the 141 eligible voters of Bozi Dar, a village on the German border, voted to freeze work on a proposed nearby wind farm. Village mayor Jan Hornik complained that opponents of the project exaggerated the impact it would have on people's lives, saying for instance that the noise of the towers would make it impossible to sleep with open windows in the summer.

WEST WINDS

Brussels is very keen on renewables too, and some see pressure coming from there. Miroslav Hajek, director of the environmental economics department at the Czech Environment Ministry, says, “I don’t know why the [wind energy] lobbyists are pushing so strongly on the government, because profit from wind power would be the same in biomass and other renewables.” He says some German politicians have pushed their Czech colleagues to set feed-in tariffs favorable to the wind power industry.

Germany leads the world in wind energy, with a capacity of 14,000 megawatts in 2004, according to the industry magazine Windpower Monthly. The Czech Republic's operating capacity is a mere 10 megawatts, behind Luxembourg--but ahead of Hungary, Romania, and even Russia.

The main architects of Czech energy policy and legislation work at the Industry and Trade Ministry. Pazdera of the eco-energy department admits that the ministry is well aware that producing electricity from biomass holds far more potential than does wind power.

But policy and legislation cannot discriminate in favor of any renewable energy source, he asserts. This would violate the guiding principle of Czech energy policy as devised under EU auspices: that of a free and liberalized market.

“We need to set the conditions and ensure that the market is fully liberalized so that investors can make their choice,” he says. “We just create the borders.”

Leaving aside the irony of invoking free-market principles to justify price regulation policy, investors are indeed making free choices about the methods of renewable production they put their money into--and receive government support and subsidies for. But so far only wind power appears to be attracting their interest.

A BURNING QUESTION

Returning to our argumentative roomful of energy experts, we find another meeting of minds: the one renewable source with the potential to make a serious impact in the Czech Republic is biomass: the burning of wood and plant material to power turbines. With such huge potential, why hasn’t biomass attracted the investors?

The answer may be that one investor that takes biomass seriously is by far the most influential investor, producer, and distributor in the Czech energy market: CEZ. Some observers argue that the heavy-handed entry of the power giant dealt a blow to a fragile renewable-power industry in its infancy. When the feed-in tariff for burning biomass and coal together, or "co-firing," rose some time ago to an extremely generous 2.40 crowns per kilowatt hour, CEZ jumped at the chance and in the process, they say, by dominating the fuel supply and driving the price up, damaged small projects run by municipalities that were pushing to develop a system to help the industry evolve.

For the moment, the near impossibility of assuring a guaranteed fuel supply is shackling development. Waste material such as wood waste from furniture makers is the most common biomass fuel presently, but it isn't enough. To ensure an adequate supply, farmers need to plant energy crops--a lot of them.

To prompt farmers to start growing energy crops and organise their collection and transportation is no small task. As Panacek of the Czech Academy of Sciences puts it: “It’s a chain. You need to develop the whole chain, and who will do that?” As the only player that can encourage the industry from both the supply and the production side, the state is the only candidate in sight, and until the chain is well underway, there will be no investors coming to establish production facilities.

Some state organs are trying to harden the links in the chain. The Agriculture Ministry offers some incentives to farmers, and the new legislation under deliberation is expected to restrict eligibility for feed-in tariffs to producers of purpose-grown energy crops. Parliamentarians backing the bill hope this clause will prompt companies such as CEZ to weigh in by contracting to buy the fuel that the farmers grow.

Still sounds like discrimination though.

The Georgian Ministry for Economic Development has started accepting privatization bids for two energy distributing companies and six hydro power plants.
These six hydro power plants include: the Lajanuri, Rioni, Gumati, Shaori, Dzirula and Ats hydro power plants.
The electricity distribution company in Adjara Autonomous Republic and the United Distribution Company (UDC), which is currently managed by a USAID contractor PA Consulting, are also in the list.
The deadline for accepting privatization bids expires on October 1.