The generation of electricity from renewable sources, specifically through photovoltaic power plants (the “PV power plant”), is an actual topic. As it is a rather complex issue, this article aims to present the basic legal aspects that accompany the construction and subsequent operation of a PV power plant for the production and sale of electricity.
However, given the variability of the specific circumstances, this cannot logically be a complete overview. This paper seeks to provide an entrepreneur’s perspective and therefore focuses not only on smaller PV power plants with installed capacity up to 50 kW, which are subject to some simplified processes and requirements, but also on PV power plants with higher installed capacity. The focus of the article is then on production PV power plants, the purpose of which is to produce electricity for own consumption with possible sale of surpluses to the grid, and investment PV power plants intended purely to sell the electricity produced.
Property titles to PV plants and related topics
First of all, it is necessary to remember to secure appropriate property titles to the PV power plant. These are legal titles to the immovable property on which the PV power plant will be built, i.e. directly to the land or the building. The strongest legal title here is, not surprisingly, a property right that has not been restricted in any way for the benefit of other persons (i.e. acquired primarily by purchase, but also, for example, by exchange).
However, other private law institutes may also constitute a sufficient legal title – typically a lease or a tenancy. In these cases, where the owner of the PV power plant is not also the owner of the land on which the PV power plant is to be located, it is necessary to bear in mind one of the main principles of the Civil Code[1] (the “CC”), namely the principle of “superficies solo cedit”[2] embodied in particular in Article 506(1) of the CC. This principle generally means that buildings and other installations, with the exception of temporary structures, are part of the land. In other words, buildings firmly attached to the land on which they are situated are, with exceptions, part of the land and are therefore not a separate thing that can be disposed of independently.
In order to avoid such undesirable formal connection of the PV power plant with the different land, it is possible to use some related institutes of the CC. We are talking about the possibility of entering a reservation note in the Land Register pursuant to Section 508(1) of the CC that the PV power plant is not owned by the land owner and therefore is not part of the real estate[3]; it should be added at the same time that the entry of the said reservation note requires the consent of the real estate owner, or also the consent of the person entitled to the right in rem encumbering the real estate (e.g. the mortgagee).
Breaking the above-mentioned principle of “superficies solo cedit” is also made possible by the institute of the right in rem of the building according to Section 1240 et seq. of the CC, which gives the builder the possibility to place his own building on someone else’s land, which in such case does not become part of it.[4] However, it should be noted that this building does not become a separate thing either, but is part of the right of construction, which under the CC becomes an immovable thing itself, i.e. the object of, for example, a sale cannot be the building itself, but only the right of construction.
It is also important to have a suitable legal title to the PV power plant itself as an energy facility. Although theoretically the use of some inherently temporary institutes is also possible here, it is always advisable to secure ideally the ownership of the PV power plant. A typical means here will most often be a purchase contract or a work contract (not only for the construction of the PV power plant, but also for the design and other documentation for the PV power plant). Since the PV power plant will almost always be the product of a certain creative activity, it is also advisable to legally treat the acquisition of the necessary licence and other rights to the design and other documentation on the basis of which the PV power plant is to be constructed.
Last but not least, it is also necessary to verify and possibly secure legal titles for the use of other people’s land or equipment to lead the PV power plant infrastructure to the connection point. Typically, this will involve the establishment of specific easements, in particular a utility easement pursuant to Section 1267 et seq. of the CC.
It can only be recommended that contracts establishing specific obligations or rights to other people’s property should contain the owner’s consent to the construction and operation of the PV power plant. This consent will usually be required for the granting of a licence by the Energy Regulatory Office (the “ERO”) or for the connection of the PV power plant to the distribution or transmission system.
Public law permit from the building authority
Furthermore, a person who intends to build a PV power plant will be confronted with a conflict with the building law. A PV power plant can be implemented as a stand-alone structure (typically a free-standing PV power plant) or as a building modification (e.g. as an installation on a building). A PV power plant may then fall under different categories of building types in terms of building regulations and, consequently, may be required to obtain specific public permits for the location, construction and subsequent use of the PV power plant. For the purposes of this article, the legal situation brought about by Act No. 283/2021 Coll., the Building Act, as amended (the “BA”), effective as of 1 January 2024 for reserved buildings and with full effect for all other buildings as of 1 July 2024, is already being considered.[5]
The smallest PV power plants, which can be categorised as a so-called small construction according to the BA, can only be implemented in agreement with the planning documentation, and such PV power plants will not require a building permit or approval. According to Annex 1 to the BA, the category of small buildings will generally include PV power plants with a total installed capacity of up to 50 kW, subject to legal exceptions (e.g. in the case of cultural monuments, buildings in protected areas, major building modifications, etc.). This category of PV power plants is covered, inter alia, by Decree No 114/2023 Coll., on requirements for the safe installation of electricity generation plants using renewable energy sources with an installed capacity of up to 50 kW, which sets out specific requirements for the design of PV power plants, all with the aim of ensuring the fire safety of such PV power plants.
PV power plants with a total installed capacity of more than 50 kW up to 100 kW can generally be classified as “simple structures” according to the BA. The location and implementation of a simple construction will already require a permit from the relevant building authority, with the proviso that subsequent approval will not normally be required.
Other PV power plants with a total installed capacity of more than 100 kW but less than 5 MW can be categorised as “other constructions”, the location and implementation of which will again require a permit from the building authority and subsequent approval.
The largest PV power plants can then be classified as “dedicated buildings”, with a total installed capacity of over 5 MW. The BA will then set some stricter conditions for these constructions than for the so-called other constructions.
At the same time, we would like to point out that other obligations set out in the building regulations in connection with the construction of the PV power plant (e.g. provision of construction supervision, construction by a construction contractor, etc.) must always be observed.
Connection to the distribution or transmission system
If a PV power plant is to be connected to the distribution or transmission system, whether for the purpose of removing overflows, it must be contractually connected to the system in advance. The connection contract is concluded in accordance with Act No 458/2000 Coll., on the conditions of doing business and on the exercise of state administration in the energy sectors and on amendments to certain acts (Energy Act), based on a relevant application by the applicant. On the basis of this contract, the transmission or distribution system operator undertakes to connect the applicant’s equipment to the transmission or distribution system and to provide it with the agreed reserved power and input power. On the other hand, the applicant undertakes, inter alia, to pay the operator a share of the eligible connection costs. The contract therefore lays down in particular the conditions of connection, the rights, obligations and responsibilities of the parties and the technical details of the connection to the transmission or distribution system.
In the case of connection to the transmission system, the contract is concluded with the state-owned company ČEPS, a.s. In the case of connection to the distribution system, it is then with its respective operator (typically e.g. ČEZ Distribuce, a.s., EG.D, a.s. or PREdistribuce, a.s.).
Often a preliminary agreement is concluded between the two parties before the connection contract itself, especially in cases of subsequent construction of the PV power plant or the need to secure and build the necessary infrastructure. The actual connection is then implemented under the terms of the specific connection contract and connection conditions.
Licence granted by the Energy Regulatory Office
For the actual operation of the PV power plant, it must be further assessed whether the specific PV power plant will be required to obtain one of the licences granted by the ERO.
In the electricity sector, there are four areas for which the ERO grants licences. These are electricity generation, electricity distribution, electricity transmission and electricity trading.
In the case of the operation of a PV power plant, the main relevant factor is obtaining a licence for electricity generation (however, the licence itself is not a condition for connecting the PV power plant to the electricity grid). This licence will serve both for the production of electricity itself and for its sale to a customer or electricity trader. With effect from 1 January 2024, the obligation to obtain a licence for electricity production applies to PV power plants with an installed capacity of more than 50 kW, regardless of the nature of the activity (i.e. to produce for both own consumption and for business), if the PV power plant is connected to the transmission or distribution system. A licence is also still required in all cases where the operation of a PV power plant has the characteristics of an entrepreneurial activity (i.e. in such a case also for PV power plants with an installed capacity of up to 50 kW). The ERO licence itself is linked to the business and the licence holder becomes an entrepreneur. The ERO will issue a licence to any applicant who meets the conditions for its issuance set out in the Energy Act and implementing regulations (in particular, according to Decree No 8/2016 Coll., on the details of granting licences for business in the energy sector). The licence must be applied for only when the PV power plant is built, not when it is constructed.
If the applicant intends to buy and resell electricity in addition to generating and selling electricity, it must also obtain an electricity trading licence.
It should also be borne in mind that the electricity generation licence is granted for a maximum of 25 years and the electricity trading licence for 5 years.
Both the electricity producer and the electricity trader are obliged to register with the market operator (OTE, a.s.) within 30 days after the licence is granted.
Contract with an electricity trader
In connection with the operation of PV power plants, it is also necessary to remember what happens to the generated but not consumed electricity. Here, it is proposed to sell it to an electricity trader. The electricity produced that is not used for the producer’s own consumption, whether it is electricity produced purely for the purpose of selling it or any surplus energy produced, will therefore be sold to an electricity trader who has the relevant trading licence from the ERO. For this purpose, a power purchase agreement must be concluded with such an entity (e.g. ČEZ ESCO, a.s.).
Subsidies
The construction of PV power plants is often the subject of subsidy programmes, including those for entrepreneurs in the electricity generation sector. These include, for example, support provided by the Modernisation Fund (RES+), where individual modernisation calls can be found on the website of the State Environmental Fund of the Czech Republic.
Conclusion
Any entrepreneur’s intention to go down the route of generating electricity from a PV power plant, regardless of whether it is a business plan for resale, production for own consumption, or a combination of both, is associated with a wide range of issues, starting with the treatment of property titles to the PV power plant and real estate, public permits from the building authority, through the solution of the connection of the PV power plant to the distribution or transmission system, the procurement of licenses from the ERO, and related registration obligations, to subsidy aspects.
Considering the complexity of the individual topics and their interconnectedness, it can only be recommended that they be addressed in a timely manner, ideally with the support of an expert in the field, which can prevent a number of later complications that can significantly delay or even completely ruin the implementation of the project.
Should you have any questions on this topic, please do not hesitate to contact us.
[1] Act No. 89/2012 Coll., Civil Code, as amended.
[2] Translated, it means “the surface gives way to the soil.”
[3] We see practical applicability not only for PV power plants built on buildings, but also for free-standing PV plants.
[4] This institute is logically directed primarily towards free-standing PV power plants.
[5] In view of the limitation of the scope of this paper, the legal situation according to the original legislation based on Act No. 183/2006 Coll., on spatial planning and building regulations (Building Act), as amended, is not discussed separately. However, there are similarities between the two legal regulations in this particular area.
JUDr. Miloš Kulda, Ph.D., attorney – kulda@plegal.cz
Mgr. Nikola Tomíčková, junior lawyer – tomickova@plegal.cz
Mgr. Jakub Málek, managing partner – malek@plegal.cz
19. 4. 2024