Solar power: a restrictive national policy?

Introduction
Restrictive policy with retroactive measures
Legal framework detrimental to economic operators
Greater legal certainty?
Comment

Introduction

The instability of the legal framework resulting from the restrictive French policy on solar power, which has been in place since 2010, raises questions as to whether the measures taken comply with the EU principles of legitimate faith and legal security. The European Commission recently criticised a similar policy implemtned in Spain.

Although development of the French solar energy sector was expected under the Grenelle commitments, since the start of 2010 a major change in the regulatory framework, which was previously in favour of solar power, has brought this developement into question. This trend was confirmed through the implementation of a decree and two orders in March 2011.

In light of the position adopted on solar power by the EU institutions, which target, in particular, the Spanish restrictive policy implemented in 2010, certain issues must be considered regarding the compliance of the French measures with EU principles.

Restrictive policy with retroactive measures

During 2010 there were two decreases in the power purchase tariff, resulting in a general decrease of 12%, with the exception of solar power equipment used at home with a production capacity below 3 kilowatts (kW). More worryingly, the foreseeability of the system has been put into question. Therefore, transitory regimes have been implemented which maintain, for some economic operators, the legal power purchase obligation at the previous tariffs.

However, the conditions that must be met in order to benefit from those previous tariffs are restrictive, and sometimes retroactive. For this reason many economic operators face great difficulties. The lack of stability in the regulatory framework(1) has been increased by the sudden change in the nature of power purchase contracts – described under Article 88 of the Grenelle 2 Act as administrative contracts. As a consequence of the legal instability, legal uncertainty is starting to appear in the courts.(2) According to the legislature, purchase contracts are concluded not on receipt by the French energy company of the request to conclude a contract, but only on signature of the contract. As a result, the date on which the power purchase price is legally certain is postponed.

Finally, at the end of 2010, a three-month moratorium was placed on new solar power projects eligible for the current legal power purchase obligation.

Legal framework detrimental to economic operators

The new legal framework for the solar power field has been implemented by a decree and two orders of March 4 2011, which came into force on March 10 2011. The decree modifies the Decree on Legal Power Purchase Conditions (May 10 2001), while providing that those power purchase conditions specify the technical and financial requirements that must be fulfilled in order to be eligible for the current legal power purchase obligation.

The first order of March 4 2011 provides certain new legal power purchase conditions, with power purchase tariffs again being reduced, and an adjustment mechanism by term on the basis of the volume of projects filed. This mechanism has led to the unforeseeability of tariffs and, as a consequence, some major problems in financing electric power plants.

The second order of March 4 2011 repeals the Tariffs Order (August 31 2010), while maintaining the right to purchase of power at the previous tariff for some installations. Moreover, the government is ready to carry out wide tender processes in order to regulate the development of solar power plants.

The notions of 'tenders' and 'adjustment mechanisms by term' create some arbitrariness and a lack of foreseeability. The orders of March 4 2011 are far from meeting the legitimate expectations of legal certainty and foreseeability of tariffs.

There remain many issues to be dealt with in order to make the sector legally certain for installations with a power production capacity of more than 100kW.

Greater legal certainty?

In a communication published on November 10 2010 entitled "Energy 2020 – A Strategy for Competitive, Sustainable and Secure Energy", the European Commission set down the need for foreseeability in the support schemes that member states set up:

"The further development of renewable energy will continue to rely for some time on support Schemes... Greater use of balanced, cost-effective and predictable feed-in premiums, more technology-specific support and financing instruments should be mobilized in accordance with state aid rules when applicable... In particular, retroactive changes to support schemes should be avoided given the negative effect such changes have on investors' confidence."(3)

The commission again pointed out the requirements of foreseeability and non-retroactivity in a letter to the Spanish minister of renewable energies in February 2011. The Spanish policy is similar to the French policy, and some changes have now been made to it – for example, the duration of enforcement of the legal power purchase tariffs has been limited to a maximum of 25 years, and electric power production has been limited to prices set down by decree (both retroactive measures).

In such context, the commission has pointed out the EU goals in the renewable energy field are for renewable energy to provide 20% of total energy consumption, and to abide by the general EU principles of legal certainty and legitimate expectations.

The position adopted by the commission in relation to the Spanish solar power policy must be taken into account when considering the French policy. The French policy must create scope for the development of solar energy which is sustainable and compliant with EU requirements.

Comment

Although the European Union's goals are ambitious in the field of renewable energies, France has decided to put an end to the strong support given to the development of solar energy. However, the method of implementing this radical change has created an unstable situation, resulting particularly from the retroactivity of certain measures.

For further information on this topic please contact Patricia Savin or Patricia Cuba-Sichler at Savin Martinet Associés by telephone (+33 1 53 43 22 20), fax (+33 1 53 43 22 21) or email ([email protected] or [email protected]).

Endnotes