UPDATE 2-Czech lawmakers approve curbs to solar boom

* Law gives regulator freedom to cut feed-in tariffs

* New solar capacity expected to rise four-fold

(Adds CEZ comment on cutting prices to German level)

By Jan Lopatka

PRAGUE, March 17 (Reuters) - Czech lawmakers overwhelmingly approved a law on Wednesday to control the boom in solar energy in Europe's third-largest builder of capacity in the sector.

The 200-member lower house of the Czech parliament voted 169 to 1 to allow regulators to cut hefty solar energy incentives that have triggered fears of a steep rise in electricity prices and grid instability in the future.

This law gives the regulator the freedom to cut the feed-in tariffs that distributors must pay solar plants as of next year, when it determines that the return on investment into solar plants falls below 11 years.

The legislation comes after the combination of a drop in the price of solar panels and high fixed feed-in tariffs brought the return on the initial investment for some plants down to as little as three years.

The current legislation permits just a 5 percent annual drop in feed-in tariffs. Any drop applies only to new projects, as all projects have a guarantee that the initial feed-in tariff they are given will apply for 20 years.

These generous incentives made the Czech Republic the third biggest solar power country in Europe last year behind Germany and Italy in terms of newly-installed capacity, even though it does not immediately spring to mind as one of Europe's hot spots. [ID:nLDE62E1Q1]

There are a number of private-equity firms that are investing in solar power in the Czech Republic, but the biggest projects are run by CEZ (CEZPsp.PR), central Europe's largest utility.

CEZ however said it welcomed the decision, because it would prevent a "dramatic" impact of solar energy on retail power prices.

"We believe that the Energy Regulatory Office will use its authority and cut the feed-in tariffs at least to the level in Germany," CEZ said in a statement.

The current rate in the Czech Republic is 12.25 crowns per kilowatt hour (0.48 euro). This compares with the recently reset German tariff of EUR 0.39/kWh, which may be lowered further in coming months.

Global solar stocks plunged in January when it emerged Germany -- the world's largest solar market -- planned to make additional cuts to the tariffs, arguing the industry was overly subsidised and needed to become competitive faster. [ID:nLDE60J0PA] [ID:nLDE60E05V] [ID:nN14193027]

In the Czech Republic this year, new capacity is expected to soar possibly four-fold to 1,000 to 2,000 megawatts as investors hurry to lock in the existing high tariffs before the new regulations take effect.

The feed-in tariffs, about ten times the price of conventional power, filter into the retail price for electricity, and sharp growth in solar capacity thus raises the final price for consumers.

The law approved on Wednesday still needs to be passed by the upper house, the Senate. It is expected to face no difficulties there. (Editing by Amanda Cooper and Sue Thomas)