In December 2010, the Slovak Parliament adopted an Amendment to the Renewable Energy Sources (RES) Promotion Act. The previous legislation was not able to react to the decreasing prices of photovoltaic components due to regulation that stated that the tariff could not be decreased by more than 10% per year resulting in a boom in solar energy projects and leading to potential problems in the stability of the country’s transmission system. By means of legislative changes, the state is trying to regulate the construction of photovoltaic and wind energy facilities. Pursuant to the Amendment to the Act, effective as of 1 February 2011 (apart from some provisions effective as of 1 April 2011), only solar rooftop facilities or solar facilities on the exterior wall of buildings with capacity not exceeding 100kW are promoted in the form of additional payment on a feed-in tariff.
Under Directive 2009/28/EC on the promotion of the use of energy from renewable sources, the Slovak Republic is obliged to increase the share of electricity from renewables to 14% of total energy consumption in 2020. The latest reported share for 2008 was 8.4%. To comply with this ambitious commitment, and to manage duties under the respective Directives of the European Parliament and Council (Directive 2004/8/EC on the promotion of co-generation based on useful heat demand in the internal energy market, and Directive 2001/77/EC on the promotion of electricity produced from renewable energy sources in the internal electricity market), the Slovak Parliament adopted the long-awaited Act No. 309/2009 Coll. on the Promotion of Renewable Energy Sources and High Efficiency Cogeneration Production (“RES Promotion Act”), which came into force as from 1 September 2009.
RES Promotion Act
The RES Promotion Act revises the rules that support electricity produced from renewable energy sources, and introduces new rules that support the high-efficiency cogeneration of electricity. It regulates the methods and requirements of the promotion of electricity from renewable energy sources, in particular: (i) priority connection of such energy facility into the regional distribution system; (ii) priority access to the grid, transmission, distribution and supply of electricity; (iii) off-take of electricity at the price for electricity to cover grid losses; (iv) feed-in tariff; and (v) transfer of the liability for deviations (i.e. the difference between the production of electricity and demand) to the regional distribution system operator.
The feed-in tariff consists of the price for electricity to cover grid losses, and an additional payment of the difference between the price for electricity to cover grid losses and the fixed feed-in tariff. A RES electricity producer is entitled to an additional payment on a feed-in tariff for 15 years after the initial operation, reconstruction, or modernisation of a facility. The feed-in tariff used for the calculation of the additional payment will be the same for the entire period during which the electricity producer is entitled to the additional payment. Nevertheless, the Regulatory Office for Network Industries ("Regulatory Office") may increase this feed-in tariff by the core inflation coefficient, and by a coefficient reflecting the technology used. The feed-in tariff for new facilities is determined by the Regulatory Office for a period of no more than three years (usually valid for one calendar year) and must not be lower than 90% of the tariff applicable in the period in which the tariff was set. The producers may enjoy the feed-in tariffs for electricity from renewable energy sources for 2011 as follows: solar energy (depends on the installed capacity and year of installation): EUR 382.61-387.65/MWh, wind energy: EUR 80.91/MWh, geothermal energy: EUR 195.84/MWh, biomass: EUR 113.10-144.88/MWh, hydropower: EUR 61.72-109.08/MWh.
After a few months of euphoria following the new regulation promoting renewables, the development of new solar and wind energy projects has been blocked by new administrative and legal restrictions.
Certificate of Compliance
Prior to constructing energy facilities, a constructor has to obtain a certificate on the investment plan’s compliance with the long-term concept of the Slovak Republic’s energy policy ("Certificate of Compliance") issued by the Ministry of Economy. Non-photovoltaic energy facilities with an intended total installed capacity of less than 1MW, and energy facilities for electricity distribution to be operated by a distribution system operator, are exempted from this requirement. As regards photovoltaic facilities, the formerly applicable installed capacity cap of 1MW, under which the construction of these facilities did not require the prior obtaining of a Certificate of Compliance, was reduced to 100kW as of May 2010. Moreover, photovoltaic facilities have to be located on a building roof. Tighter rules have been adopted to prevent investors avoiding the obligation to apply for the Certificate of Compliance required for the installation of photovoltaic facilities with installed capacity over 1MW by way of dividing their project into several smaller parts.
In addition, in June 2010 the Slovak Transmission System Operator (SEPS) stopped issuing affirmative statements on connecting newly built energy facilities to the transmission system. According to SEPS wind and solar energy are regarded as unstable energy sources with high fluctuations in power generation that endangers the safety and reliability of the transmission system. Without an affirmative statement from SEPS, no Certificate of Compliance would be issued by the Ministry of Economy, which is a regulatory requirement for constructing energy facilities. New statements will not be issued until the end of 2011. After evaluating the influence of all types of renewable energy sources on the electricity grid of the Slovak Republic, at the beginning of 2012 the situation will be revised by SEPS again and new rules for the issuance of affirmative statements will be introduced.
Learning from the Czech experience
As a reaction to the situation in the neighbouring Czech Republic, the Slovak Ministry of Economy notified in October 2010 the plan to adopt tighter rules for the solar energy sector. Powered by extremely generous feed-in tariffs, the loose rules for the issuance of permits for photovoltaic energy facilities in Czech Republic has resulted in the mushrooming of solar energy projects. As a subsequent result, electricity prices for the Czech end consumers have increased significantly.
The advised Amendment to the RES Promotion Act was adopted by the Slovak Parliament in December 2010. By means of legislative changes, the state is trying to regulate the construction of photovoltaic and wind energy facilities, which are considered by SEPS to be unpredictable renewable energy sources that have a potential influence on the stability of the transmission system. Pursuant to the Amendment to the Act, effective as of 1 February 2011 (apart from some provisions effective as of 1 April 2011), only solar rooftop facilities or solar facilities on the exterior wall of buildings with capacity not exceeding 100kW are promoted in the form of additional payment. Promotion in the form of the transfer of liability for deviations is also reduced to 1MW of installed capacity (previously 4MW) with respect to non-photovoltaic facilities.
The regulation of the transfer of the liability for deviations is even stricter regarding solar facilities: this is reduced to 100kW of installed capacity (previously 4MW). Further, according to the Amendment the Regulatory Office shall be entitled to reduce feed-in tariffs for solar and wind energy facilities without limitation, i.e. by more than 10% in respect of the next regulation period. The Amendment also specifies conditions for the reconstruction and modernisation of already existing devices. The total costs for reconstruction and modernisation must exceed more than 50% of the total investment costs of the producer. The changes in the promotion scheme will not affect projects under development, with a building permit effective prior to 1 February 2011 and with a use permit issued prior to 1 July 2011.
The solar energy boom in the Slovak Republic was caused by legislation that was not able to react to the decreasing prices of photovoltaic components due to regulation that stated that the tariff could not be decreased by more than 10% per year, but the investment costs decreased much faster. To lift this restriction amendments to the regulation were necessary. However, the new regulation, in combination with previously introduced administrative restrictions of grid operators, sharply cuts the benefit and heavily favours small residential installations under 100 kW in comparison to larger commercial solar projects. This follows the trend in other European countries like Spain and Germany which have changed their promotion schemes to favour small distribution solar owners. As a result, new solar and wind energy projects in Slovakia are on hold due to the practical impossibility of obtaining the necessary permits, and as of 1 February 2011 respectively 1 April 2011 also due to the restricted promotion.
Nevertheless, with an annual solar irradiation per square meter comparable to that of southern Germany, Slovakia is still an interesting market for investors. As the country’s National Action Plan for renewable energy sources that was adopted in October 2010 assumed that the Slovak Republic will meet its commitment primarily by way of supporting the generation of heat by using biomass and high efficiency cogeneration production. Biomass is also considered to be a prospective alternative source for electricity generation.