Sami Kyntölä Lauri Toivio July 20 2015 Government proposes reform of feed-in tariff system Sivenius Suvanto & Co Ltd | Energy & Natural Resources - Finland Sami Kyntölä, Lauri Toivio Energy & Natural Resources Recent developmentsFiT systemProposal for reformOutlookThe government has published a draft proposal for reform of the Act on the Feed-In Tariff for Electricity Produced from Renewable Energy Sources for public comment. The reform is expected to come into force as soon as Autumn 2015.Recent developmentsFinland had parliamentary elections in April 2015 and the new government presented its legislative schedule on May 29 2015. The programme contains significant changes to the environmental legislation affecting infrastructure, large projects and the energy sector, as well as major economic cutbacks. One target for cutbacks is the feed-in tariff (FiT) system for wind and other energy production using renewable energy sources. Despite the schedule introducing a revised policy focused on the use of biopower and other forms of renewable energy, major changes are proposed for the existing FiT system for wind power. The government intends to reduce the FiT limit significantly from 2,500 megavolt amps (MVA) to 2,000MVA.How the schedule's targets will be achieved is still unclear. The first reaction from the market has been many wind power plant developers seeking to join the FiT system by submitting quota applications in order to reserve their share of the FiT limit. As a result, the number of pending quota applications has risen sharply.Since the schedule was announced, further clarification of the future of the FiT system has been received. On June 18 2015 the Ministry of Employment and the Economy published a draft proposal for a bill regarding a reform of the Act on the Feed-In Tariff for Electricity Produced from Renewable Energy Sources.FiT systemThe FiT is available for new wind power plants, biogas power plants and wood-fuelled power plants which also produce heat for utilisation and wood chip power plants. The FiT is governed by the act and precise procedures are set out in the guidelines published by the Energy Authority.At present, the FiT pays the wind energy producers the difference between the three-month mean market price of electricity and the target price. The general target price of the FiT is €83.50 per megawatt hour (/MWh). However, wind power plants in production receive an increased target price of €105.30/MWh for the energy produced until the end of 2015.Wind power plants may be accepted into the FiT until the combined nominal capacity of the generators in the wind power plant in the system exceeds 2,500MVA (ie, the FiT limit). The FiT is paid for a power plant for a maximum of 12 years from the date on which the power plant is accepted into the FiT.Proposal for reformThe key reforms set out in the draft proposal are as follows:Submitting a quota application and obtaining a favourable quota decision will be a mandatory pre-stage for gaining access to the FiT.At present, quota decisions are valid for two years after issue. The final acceptance application must be submitted within that two-year period or the decision will lapse. However, the decision can remain valid until June 30 2020 at the latest. Under the amended act, this latest validity date would be amended to November 2017.The total limit of the FiT is 2,500 MVA. At present, this limit is reached only when the amount of acceptance decisions exceeds the limit, and thus new space becomes available only if one or more quota decisions lapses. Under the amended act, acceptance decisions and quota decisions would be counted together and the limit would be reached permanently once the combined amount exceeded the limit for the first time.The proposal states that the total limit of 2,500MVA will not be decreased or otherwise amended. Further, the current target price will not be amended.The draft proposal is now open for public comment until July 30 2015; the market's reaction is as yet unclear. However, based on the reasoning set out in the proposal, in practice, the actual FiT limit will be reduced substantially from 2,500 MVA, as immature projects will receive a quota decision, and thus a substantial share of projects will lapse before they reach the acceptance stage.Nevertheless, the key measure in the proposal is that no changes will be made to the tariff payments of wind farms that have already been accepted or are close to acceptance into the FiT system.OutlookThe recent rapid increase in submitted quota applications has resulted in a situation where the FiT will reach its limit if all of the applications are accepted. The changes proposed to the act will exacerbate this problem.In additon, on June 18 2015 the Ministry of Employment and the Economy published a bulletin on the reform and future development of the tariff system for wind energy production. The bulletin stated that a working group shall be established to prepare a new system. The working group shall begin work in Autumn 2015. Unofficial reports on the new system indicate that it will be based more on public auctions and the economic and technical capabilities of the projects. Thus, only projects with the best market potential and that are most likely to be completed will be accepted into the system. It is also plausible that the tariff will be lower than in the existing system.When evaluating the future of the FiT system, the political and legislative challenges implicit in the reform must be borne in mind. The development of wind energy is twofold: it promotes green values, but state, economic and industrial factors militate against an increase in volume. In addition, the different political parties and other groups have varying opinions of wind energy, which may delay the reform process. Another issue to be considered is the status of wind farms that currently participate in the FiT system and its effects on them.Market opinion seems to suggest that the total amount of money budgeted to the wind energy tariff will remain the same. However, it will be spread across more projects and the tariff payable for a project shall be more market based than under the existing FiT system.For further information on this topic please contact Sami Kyntölä or Lauri Toivio at Sivenius Suvanto & Co Ltd by telephone (+358 9 530 6760) or email ([email protected] or [email protected]). The Sivenius Suvanto & Co Ltd website can be accessed at www.sisulaw.fi.