Installation of a small photovoltaic power plant for entrepreneurs:

Investing in a photovoltaic power plant (PVP) is becoming an increasingly attractive strategic decision for companies in the Czech Republic. Companies are looking for ways to strengthen their energy independence, significantly reduce operating costs, and minimize the environmental impact of their activities. PV systems with a capacity of up to 50 kWp appear to be the ideal solution for most small and medium-sized enterprises in this context, as they can cover a significant portion of their own consumption while allowing for the efficient sale of any surplus to the grid.

Author of the article: ​ARROWS (Mgr. Daniela Sobotková, LL.M., office@arws.cz, +420 245 007 740)

Although legislation in the field of smaller PV systems has undergone significant simplification in recent years, the legal and regulatory framework remains complex and subject to dynamic changes. At first glance, the absence of a license or building permit requirement (under certain conditions) may seem to mean a smooth path forward. In reality, however, this simplification can be illusory if there is a lack of in-depth understanding of the nuances. While the initial permitting process for PV systems up to 50 kWp for self-consumption has indeed been streamlined, basic legal and technical requirements, subtle distinctions between "self-consumption" and "business," new obligations, and risks associated with installation quality or operating models such as virtual batteries create a new layer of complexity. Companies can easily run into trouble if they assume that no license, no permit means no legal problems. This often shifts complexity to other, less obvious but equally critical areas of compliance.

In this dynamic environment, ARROWS lawyers are your reliable partner. They provide comprehensive legal advice necessary for the successful implementation and smooth operation of your corporate photovoltaic system, minimizing risks and ensuring legal certainty on the path to energy independence.

Legislative framework: What you need to know about PV systems up to 50 kWp

Energy Regulatory Office (ERO) license: The key to understanding your obligations

A fundamental change in Czech energy legislation was the amendment to the Energy Act in 2023, which increased the limit for operating photovoltaic power plants without a license from the Energy Regulatory Office (ERO) from the original 10 kWp to the current 50 kWp. This change has significantly expanded the opportunities for small and medium-sized entrepreneurs.

Operating a PV power plant without a license is possible under certain conditions: (i) the installed capacity of the power plant must not exceed 50 kWp and (ii) its operation must primarily serve for own consumption or sharing of electricity, not for profit. This means that electricity generated on the roof or land of, for example, a limited liability company should preferably be used in its business premises or production halls.

However, even for power plants up to 50 kWp, there are situations where a license from the ERÚ is necessary. These are primarily cases where the operation of a PV power plant is considered a business. According to the law, a business is an activity carried out independently, on one's own account and responsibility, for profit. Therefore, if a company regularly sells electricity for profit, it will need a license even for a power plant with a capacity not exceeding 50 kWp. Furthermore, if a company already operates another licensed PV power plant at the same consumption point, it must include the new power plant in its existing license.

The difference between own consumption and business activity is a fine line with major consequences. The definition of "own consumption" is not based solely on the company's intention (e.g., to reduce operating costs), but on the actual manner of operation. If a company generates any regular, even small, surpluses that are fed into the grid, the line between own consumption and business activity becomes blurred. This is particularly true in view of the new requirements regarding production EAN and responsibility for deviations that will come into force. A company that believes it is operating a PV system for its own consumption without a license may unintentionally cross this line and find itself in a business or unauthorized supply regime, which would result in a license requirement, tax implications, and potentially significant fines.

For PV plants with an installed capacity of over 50 kWp, a license from the ERÚ is always required, regardless of the purpose of use of the electricity produced, if the power plant is connected to the distribution or transmission system. The process of obtaining a license, if required, involves carefully selecting the correct documents, completing the relevant forms, and then registering with the Market Operator (OTE) after the license has been granted. In addition, legal entities must appoint a responsible representative. ARROWS lawyers can accurately assess whether your planned or existing PV power plant falls within the safe zone of own consumption or whether it already falls under the definition of a business requiring a license and other obligations.

Building permits and the new Building Act: Simplification with conditions

The new Building Act (Act No. 283/2021 Coll.), which came into full effect on July 1, 2024, brings significant simplification for the installation of PV power plants up to 50 kWp. These power plants are often categorized as so-called small structures.

Small PV installations with a capacity of up to 50 kWp do not require a building permit or final approval, provided that specific conditions are met. The key conditions include that the installation must not interfere with the load-bearing structures of the building, must not change the use of the building, does not require an environmental impact assessment (EIA), and must meet all fire safety requirements. Furthermore, this exemption does not apply to cultural monuments or buildings in protected areas. It is important to note that even these small structures require building supervision.

Although a building permit is not always required, professional project preparation is absolutely essential for proper and safe installation and can save the company considerable financial resources. The absence of a formal building permit for smaller PV systems shifts the responsibility for compliance with regulations directly to the investor and the installation company. This is not a free hand, but an increased emphasis on compliance with technical standards, in particular fire safety (Decree No. 114/2023 Coll.), proper project design, structural integrity (roof load-bearing capacity), and professional supervision. Failure to comply with these conditions may result not only in fines, but also in serious safety risks and potential invalidation of insurance coverage.

Fire safety: Decree No. 114/2023 Coll.

Decree No. 114/2023 Coll. plays a key role in the fire safety of photovoltaic installations. This decree sets out specific requirements for the safe installation of electricity generation facilities using renewable energy sources with an installed capacity of up to 50 kW. Compliance with this decree is essential for meeting the conditions for license-free operation and for exemption from building permits.

Fire safety is not just a formality, but a critical point for the operation of PV power plants, directly affecting both compliance with legislation and insurance coverage. Statistics show that the main causes of PV power plant fires are incorrect installation, manufacturing defects in components, and design errors. This underscores that compliance with the decree and related standards is essential to minimize risk. Although Czech standards are often only recommendations, compliance with them is essential for insurance claims in the event of an emergency such as a fire.

Failure to comply with fire regulations, whether due to poor installation or design, directly increases the risk of fire. If a fire occurs and the installation did not comply with these (albeit recommended) standards, insurance companies may refuse to pay insurance claims, which would result in huge financial losses for the company. This elevates fire safety from a mere technical detail to a critical legal and financial vulnerability.

Practical steps for implementation: From application to launch

Connection to the distribution system: The necessary bridge to energy independence

The first and necessary step to start operating a PV system is to submit an application for connection to the distribution system to the relevant distribution system operator (DSO). The connection application requires detailed company information, such as the company name, ID number, registered office, etc. It is also necessary to specify the technical parameters of the planned PV system, including the required installed and reserved capacity, generator type, battery capacity (if part of the system), and connection type (single-phase/three-phase). A single-pole connection diagram and written consent from the property owner are also often required.

After submitting the application, the DSO will perform a technical assessment of the connection options. If the assessment is positive, the applicant will receive a draft connection agreement. Once installation is complete, it is necessary to go through the permanent operation authorization (POA) process, after which a final operating notification is issued and the electricity meter is replaced.

Grid capacity and technical details represent a new bottleneck in the connection process. Although the legal requirements for licensing have been relaxed, technical requirements and grid capacity constraints have become significant practical obstacles. It is not uncommon for connection requests to be rejected or for a power plant to be temporarily connected in a simplified mode until the capacity of the distribution network in the area is increased. The complexity of technical requirements specific to each distributor means that a seemingly simple installation can be delayed or rejected if it is not carefully planned and implemented with these details in mind. This highlights the need for expert technical and legal advice to ensure a smooth and fully compliant connection. ARROWS lawyers will help you assess the connection agreement and technical conditions to avoid unnecessary complications and ensure the smooth connection of your PV plant.

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Production EAN and registration with the Market Operator (OTE): A new administrative reality

The production EAN is a specific code that allows PV plant operators to conclude a separate contract for the supply of electricity and a separate contract for the sale of surpluses. From January 1, 2023, all PV plant operators will be entitled to be assigned a production EAN.

The reason for introducing the production EAN is to comply with legislative requirements, specifically Decree No. 408/2015 Coll., on electricity market rules, which stipulates the obligation to register production sources with two EAN codes: one for consumption and one for production. After being granted a license (if required for the PV plant in question), the producer is required to register with the Market Operator (OTE), thereby becoming a registered market participant.

A key new obligation that will come into force on July 1, 2025, is the need to contract an electricity trader who will assume responsibility for the deviation for the production EAN. This obligation applies to all production sources, including micro-sources, even those that were put into operation before January 1, 2025.

The apparent "freedom" to sell surpluses brings with it a new and critical administrative burden and risks. If a company does not secure an electricity trader to take responsibility for the deviation of its production EAN code, it will find itself in a situation of unauthorized supply of electricity to the distribution system. This situation is prohibited by energy law, and the distributor has the right to impose significant penalties. The specific amount of the penalty varies depending on the voltage level and the maximum measured power supplied to the grid without secured responsibility for the deviation. In addition to financial penalties, there is also a risk of disconnection from the grid, which would prevent its operation and electricity production.

It is also important to mention the pitfalls of the "virtual battery" service, which is often offered for the use of surpluses. This service is not free and is charged at a flat rate or based on the capacity used. In addition, the price of electricity supplied to the grid in summer can be low, while the price for consumption in winter can be significantly higher, with the supplier passing this price difference on to the customer. Virtual batteries only save on the price of electricity, not on distribution fees, VAT, and other taxes, and unused capacity may be forfeited with some suppliers. Paradoxically, the use of virtual batteries can increase a company's dependence on its energy supplier, which is contrary to the main objective of investing in PV systems – energy independence. In addition, some suppliers refuse to offer virtual battery products if the company has a separate production EAN.

The introduction of a production EAN and the possibility of selling surpluses, although seemingly advantageous, introduces a new, legally binding administrative layer that is easy to overlook. The obligation to secure a partner for responsibility for deviations (an electricity trader) is a critical, unavoidable step. Without it, the company is committing an illegal act with serious financial and operational consequences, even if the primary intention is for its own consumption. This transforms the seemingly simple act of selling small surpluses into a complex regulatory challenge that requires careful management. ARROWS lawyers will help you register with OTE, obtain a production EAN, and negotiate a contract with an electricity trader so that your surpluses do not become a source of fines.

Contract for work with a PV supplier: Secure your investment

A contract for work for the installation of a PV system is a key document that should protect the company's investment and minimize future risks. It is not a mere formality, but the first line of defense against financial and operational problems.

When concluding a contract, it is essential to pay attention to several key clauses. The contract should contain detailed and transparent information on prices and payments, clearly specifying the price for project documentation, installation, delivery of materials, and all related administration. Unreasonably high advance payments (e.g., 80-100% in advance) or wording regarding the storage of materials at the client's premises should be a warning sign.

It is also essential that the contract includes a clear schedule with precisely defined dates for the installation and commissioning of the PV plant. The contractual provisions should explicitly define the company's right to withdraw from the contract if the supplier fails to meet the agreed deadlines. Equally important are the warranty conditions for components and work performed, as well as the mechanism for resolving any defects and complaints.

The contract should also require the installation company to take out insurance to cover any damage caused during installation. The supplier should prove its authorization to install and its commitment to comply with all applicable standards and regulations, including Decree No. 114/2023 Coll. on fire safety. Another important point is the contractual treatment of responsibility for assessing and, if necessary, adjusting the static load capacity of the roof on which the PV system will be installed.

Given the administrative complexity of the entire process, it is advisable that the contract also include the supplier's commitment to provide all administrative support, such as grant applications, communication with the distributor, and the preparation of inspection reports. Providing access to remote monitoring of the PV system's performance and related statistics is another feature that increases transparency and control over operations.

A low installation price can lead to high operating costs and loss of investment. Technical and operational deficiencies, often resulting from poor installation or design, can lead to significant hidden costs throughout the lifetime of the PV system. These costs include reduced energy production, premature equipment failure, and potentially invalidated insurance coverage. Relying solely on the lowest bid without thorough technical and contractual review is a false economy that can undermine the profitability of the entire investment and even lead to safety risks.

Financial aspects and taxes: Maximize the benefits of your investment

Subsidy programs for companies: The key to a quick return on investment

For companies planning to install a photovoltaic power plant, there are a number of subsidy programs that can significantly accelerate the return on investment. It is crucial to be familiar with the current options and to strategically time the submission of applications.

The key EU fund program for Czech entrepreneurs in the 2021–2027 period is the Operational Program Technology and Applications for Competitiveness (OP TAK). This program is primarily focused on supporting small and medium-sized enterprises, but in some cases it also supports large enterprises, e.g., in the area of energy savings. Under OP TAK, there is, for example, the "Energy Savings" program, which offers subsidies for energy-saving measures, including the installation of renewable energy sources, or the "Renewable Energy Sources" program, which is intended for the production and distribution of energy from renewable sources.

The subsidy landscape is dynamic and requires strategic timing. Allocated funds are limited, and the rule of "first come, first served" applies, as each call has a limited amount of money that can be used up. It is also important to point out the potential risk of the so-called Stanjura trap, where PV plant operators could be forced to return part of the state aid if their internal rate of return (IRR) exceeds 8.4% in 2025. Unintentional errors in filling out forms can result in fines of up to CZK 50 million from the State Energy Inspection. Programs such as New Green Savings are primarily intended for households.

Subsidy programs offer significant financial leverage, but they are not an automatic guarantee. Companies must contend with limited allocations, strict deadlines (which may require accelerating other phases of the project, such as design and permitting) and potentially complex compliance requirements that could lead to subsidy clawbacks or massive fines if not managed perfectly. This makes strategic timing, careful preparation of applications, and ongoing monitoring of compliance key to maximizing benefits and avoiding serious financial impacts. ARROWS lawyers can help you navigate subsidy programs, prepare applications, and ensure compliance with conditions so that your company receives maximum support without risk of penalties.

Value added tax (VAT): Implications for your investment

It is crucial to understand how VAT applies to the acquisition and operation of PV systems, especially in the context of own consumption and the sale of surpluses. The basic VAT rate of 21% applies to materials (photovoltaic panels, inverters, and batteries) and to the installation of PV systems on commercial buildings. If the supply (installation and assembly of the PV system) is provided between two VAT payers, it is usually subject to the reverse charge mechanism. However, it is necessary to assess each transaction individually to determine whether all the legal conditions for applying this mechanism are met.

VAT payers are entitled to deduct input VAT if they use the PV system for economic activity. If the company sells the electricity it produces, it is required to pay VAT on the income from this sale at the standard rate of 21%.

VAT is a complex area where the combination of own consumption and the sale of surpluses creates tax traps. If a company claims a full input VAT deduction on the grounds that the PV system is used for economic activity (sale of surpluses), but a significant portion of the electricity produced is subsequently consumed for its own use, an adjustment to the original tax deduction on the purchase of the PV system may be required. This could lead to unexpected tax liabilities. Own consumption of electricity, i.e., electricity produced and consumed for the company's own use, is not taxable income and is not subject to VAT.

 

Corporate income tax and depreciation: Long-term optimization

PV systems are usually classified as long-term tangible assets in a company's business assets. The method of depreciation of PV systems has a significant impact on corporate income tax and the overall economics of the project.

Currently, the technological part of photovoltaic power plants is depreciated evenly over a period of 240 months (20 years) without the possibility of accelerated depreciation and without interruption. Roof modifications, the supporting structure of photovoltaic panels, and cabling are usually classified as technical improvements to the building, which represents approximately 5-10% of the total investment.

However, a significant change in depreciation is expected to take effect in the second half of 2025. Newly classified technological parts of PV power plants will be depreciated according to the characteristics of the individual technological parts of the assets in classic depreciation groups (second, third, or fourth depreciation group). This change will allow for more flexible and potentially faster depreciation. For assets for which depreciation began before the amendment to the law came into effect, the existing law as amended prior to the amendment will apply.

Income from the sale of electricity from PV plants is taxed under Section 7 of Act No. 586/1992 Coll., on Income Tax (ZDP), as income from independent activities. The costs of operating PV systems and depreciation are tax deductible. Conversely, electricity produced and consumed for the company's own use is not taxable income and is not subject to tax.

The changes in depreciation offer new opportunities for tax optimization, but require active management. The upcoming changes in depreciation rules represent a valuable opportunity for companies to optimize their tax burden and increase the financial attractiveness of investments in PV plants. However, navigating these changes, understanding which rules apply, and correctly classifying PV plant components (technological part vs. technical improvement of the building) require specialized tax and accounting knowledge. Proactive planning and consultation are essential to take advantage of these changes effectively. ARROWS lawyers, in cooperation with tax experts, will help you set up an optimal depreciation strategy and ensure compliance with current and future tax regulations.

Who can you turn to?

Why is cooperation with ARROWS lawyers crucial for your PV project?

Installing a photovoltaic power plant for a company's own consumption in the Czech Republic is an investment with enormous potential for savings and energy independence. However, as described in detail above, this process is intertwined with complex legal and regulatory aspects that are constantly evolving. The apparent simplification of legislation for smaller PV plants can lead to hidden obligations and risks being overlooked, which can have serious financial and operational consequences.

ARROWS lawyers offer comprehensive legal support for your PV project from A to Z. Their expertise is essential for:

• Initial analysis and planning: Accurate assessment of whether your PV plant falls under the license-free regime or requires a license, taking into account the nuances between own consumption and business activities. Analysis of property titles to the real estate on which the PV plant will be located and assessment of the need for easements or owner consents.
• Connection to the distribution system: Assistance with submitting a connection request, reviewing the draft connection agreement, and understanding the specific technical requirements of individual distributors, which are often a new bottleneck in the entire process.
• Post-launch administration: Ensuring the correct registration of the production EAN with the Market Operator (OTE) and negotiating a contract with an electricity trader to take over responsibility for deviations, which is a critical obligation from July 1, 2025, and failure to comply with which leads to high fines and the risk of disconnection.
• Contractual security of the investment: Thorough review and negotiation of the contract for work with the PV plant supplier. Ensuring clauses relating to prices, schedule, guarantees, insurance, compliance with standards, static load capacity of the roof, and administrative support. This minimizes the risks of technical problems, financial losses, and warranty service issues.
• Financial and tax optimization: Advice on subsidy programs, assistance with preparing applications and ensuring compliance with subsidy conditions so that your company receives maximum support without the risk of penalties. Furthermore, optimization of tax impacts, especially in the area of VAT and depreciation, taking into account the combination of own consumption and sales of surpluses and upcoming changes in depreciation.
• Risk minimization: Active prevention of penalties for unauthorized electricity supply, fines under the Building Act, and hidden costs arising from technical and operational problems or unfavorable virtual battery contracts.

Investing in photovoltaics is a step forward for your company towards a sustainable future. To ensure that this investment really pays off and does not bring unexpected complications, it is essential to have a strong legal partner at your side. ARROWS lawyers regularly deal with these issues and are ready to provide you with comprehensive support so that you can focus on your core business, knowing that your energy future is in safe hands.

Please do not hesitate to contact us to discuss your PV project. We will ensure that your journey to energy independence is smooth and worry-free.

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