The Czech government agreed Wednesday on a new 26% tax on solar power generation profits, taxes and, at a later date, auctions of carbon emissions credits, and a hike in the fee to use public land for solar power generation, Prime Minister Petr Necas said at a press conference.

The steps are meant to limit the annual increase in electricity prices caused by new subsidies for photovoltaic power generation which take effect in 2011 and will likely have a limited impact on dominant Czech utility CEZ AS (BAACEZ.PR).

"We take the [new] measures as a fact and we will analyze their impact on CEZ from the moment [further] details become available," CEZ spokeswoman Eva Novakova said, adding the company has continually been tracking the uncontrolled growth and problems of the solar sector.

"For end-users, both households and in the industrial sphere, the price increase will be a maximum of 5.5% next year," Necas said.

The government agreed to impose from 2011 a windfall tax of 26% on profits generated by subsidized photovoltaic power plants, largely offsetting the tax holiday most photovoltaic power producers were set to enjoy.

The solar tax is set at 370 koruna [$21] a megawatt, which should generate CZK10.7 billion annually, he said.

The cabinet-approved measures will also impose a tax on the market value of carbon emissions credits that will be given away for free to electricity companies, including CEZ, in 2011 and 2012, the Prime Minister said, adding that these taxes should generate CZK4.2 billion annually.

From 2013 onward, the government will sell all emissions credits to power companies at auction rather than selling only 30% of emissions credits and giving the rest to power companies for free, as was the previous plan, Necas said.

CEZ has already said it expects up to a CZK2 billion negative hit to its net income due to legislative changes in the photovoltaic power segment and will likely recover such costs, said JPMorgan Cazenove in a note.

"Based on a 60% market share in the distribution segment, CEZ could therefore bear CZK2.4 billion in extra costs in 2011-2012...we believe the government is likely to allow the company to gradually recover these costs through tariff increases in later years," said JPMorgan, which has a neutral rating on CEZ.

CEZ's share price moved lower on the news. At 1405 GMT the company's shares traded down 1% on the day at CZK771.50.

The government also approved raising the fee to rezone and use public land for photovoltaic power generation, a step which should generate CZK1.7 billion annually, Necas said.

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