Wednesday, March 24, 2010

USD 40 billion of Czech solar subsidies in the pipeline

One week ago, the Czech Parliament voted almost unanimously (169 to 1) to allow the energy regulator to slash the subsidies paid to the producers of solar energy by 5% per year whenever the payback period drops below 11 years. It still takes 10 years to slash the subsidies just by 40%.

Isn't the new amendment too little too late?

The production of the Czech solar energy - and subsidies - grew nearly by an order of magnitude in just one year. That's crazy especially because Czechia is no Sun paradise. The lawmakers have realized the huge threat of global subsidizing, including their unsustainable growth, and they agreed to instantly fight against it.

However, Lidovky (EN), the country's #2 daily, published an analysis from economist Miroslav Zajíček (the last name means Bunny) estimating how much green subsidies we have already committed to - how much wasted money is already waiting in the pipeline - because many contracts can no longer be abolished.

The figure is pretty shocking: it's CZK 750 billion or USD 40 billion or so. The U.S. readers will find these numbers abstract so let me translate it to the U.S. context. The U.S. GDP is nominally 60 times greater than the Czech economy (30 times higher population, 2 times bigger GDP per capita). So if the U.S. have the same subsidies-to-GDP ration, there is already USD 2.4 trillion of green subsidies waiting in the pipeline! That's more than twice Obamacare.

The author of the article calculates the estimated prices and losses in the years to come, the "billions in the trap" (well, the Czech word "trap" actually means "trot"). He thinks that details of his calculation make the CZK 750 billion figure conservative. He also says that as the electricity price jumps, some people will be switching to burning of the natural gas and old rubber boots. ;-)

Needless to say, the positive environmental advantages of these scary policies are pretty much non-existent. The electricity may be called "renewable" but the billions of dollars that are wasted for this meaningless flapdoodle are not renewable.

Solution: abolish green laws

The author is discussing an obvious conceptual solution - to abolish the law about the support of the "renewable" energy sources so that all this waste could be fully stopped. However, as he immediately realizes, the idiots in the European Commission would instantly go into the Al-Qaeda mode. In the lawsuits, joined by the green investors, they would surely overestimate both the "damages" as well as the number of planned projects. Consequently, the losses induced by this solution would probably exceed the savings.

(The European Commission has gotten completely out of control. Aside from the environment minister, there is a new special minister just for "climate action" among the 27 commissioners. Needless to say, Ms Connie Hedegaard, a journalist, doesn't have the slightest clue about science.)

So instead, he thinks it's more sensible to allow the regulation body to reduce the money paid to all the solar producers. The chance to legally defend this setup is much higher. But Dr Zajíček thinks that no Czech political representation is courageous enough even for this solution.

Another partial solution is to internalize the newly, deliberately created externalities. What do we mean?

The laws have essentially declared that the green energy producers don't have to pay any damages they cause to the third parties. Dr Zajíček suggests that new laws should guarantee that they would have to pay e.g. the expenses for the deviations from a pre-agreed energy schedule. Alternatively, they would have to pay the expenses for a supporting service at a flat rate.

Another partial solution he proposes doesn't really remove the losses but it protects the market against the green distortions. According to this proposal, the government should pay the grid and the distribution companies all the money they're losing because of the green legislation so that the consumers - and the rest of the economy - don't feel the effects of the flawed legislation.

Zajíček says that when the politicians will have to emit bonds comparable to CZK 750 billion, they may start to realize that similar decisions often have consequences. This expensive lesson may be needed for them to learn that if they sign a few idiotic bills, the nation suddenly doesn't have money for the real things that matter such as education, playgrounds for children, healthcare, or superhighways.

Today, the Czech debt is the 8th safest national debt in the world (the best is Norway, the worst is Argentina, according to the premius paid for the risk of default), but things like CZK 750 billion could change it.

The newspaper also published a sequence of articles about the five biggest nonsenses that lead to a huge waste of money in the Czech Republic: 1) photovoltaic plants, 2) weathering of houses, 3) wind energy, 4) technology to sequester CO2 under the surface, 5) biomass.

Hat tip: Vítězslav Kremlík

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