Background
EU bonus regime
Illegality of bonus regime
Comment


On May 8 2014 the government issued a decree-law repealing the Decree-Law of January 7 2013, which introduced a 5% to 10% bonus on the feed-in tariff (FIT) for all types of solar power plant meeting specific requirements regarding the EU origin of photovoltaic materials.

Background

Following the implementation of the EU Directive on the Promotion of the Use of Energy from Renewable Sources (2009/28/EC), the French government introduced a mechanism to promote electricity generated by renewable sources based on a price regulation system including an FIT.

The mechanism provides as follows:

  • Undertakings (Electricité de France and non-nationalised distributors) must purchase electricity produced by renewable sources for 20 years.
  • The purchase price is fixed annually by ministerial order at a level higher than the market price.
  • The additional costs imposed on the undertakings are offset in full thanks to a contribution paid by end consumers (the contribution au service public de l'electricité).

Two ministerial orders of March 4 2011 introduced new FITs for electricity generated by photovoltaic installations according to technical criteria (ie, the capacity of the installations).

EU bonus regime

In order to encourage the construction of photovoltaic power plants, the energy minister decided to modify the existing FIT scheme. Thus, the Decree-Law of January 7 2013 implemented a 5% to 10% bonus on the FIT for installations meeting specific requirements regarding the EU origin of the materials.

The 5% bonus applied to residential buildings fitted with photovoltaic panels (T1), ground-mounted photovoltaic plants (T5) and systems with simplified integration requiring crystalline modules (T4). To be eligible for the 5% bonus, these installations had to consist of modules produced in the European Economic Area (EEA), including the wafer transformation system. If the crystalline modules were also assembled and laminated in the EEA, the installation was then eligible for a 10% bonus.

Illegality of bonus regime

Before implementing the Decree-Law of January 7 2013, the government asked the Energy Regulation Commission (CRE) for an opinion on the draft decree-law. On December 20 2012 the CRE expressed an unfavourable opinion, noting the risks of illegality of the bonus according to both French and international law.

Non-compliance with French law
In a decision of December 20 2012, which cancelled part of the solar FIT regulations in force, the Council of State ruled that insofar as tariffs comply with Article L.121-1§2 of the Energy Code, a tariff order could provide tariff adjustments depending on the plant's expected profitability and the contribution to the goals set out in the code.

In reference to this decision, the CRE observed that the draft decree did not help to achieve any of the goals set out in the code, as the decree-law did not contribute to the fight against the greenhouse effect, and therefore impeded the equal treatment principle.

Non-compliance with EU law
The CRE also noted that Article 28§2 of the Treaty on the Functioning of the European Union clearly states that the ban on quantitative restrictions on imports between member states applies to products coming from member states, but also to those coming from other countries.

Non-compliance with World Trade Organisation law
Finally, the CRE pointed out the potential unlawfulness of the draft decree-law in terms of Article III of the World Trade Organisation (WTO) General Agreement on Tariffs and Trade (GATT), according to which products imported from other contracting parties should not receive less favourable treatment than products of national origin.

In addition, regarding the required domestic components of solar panels, the CRE noted that Japan and the European Union had lodged several complaints with the WTO against similar legislation implanted by the Canadian province of Ontario, which were under consideration by the WTO dispute settlement body at the time. Since then, the WTO appellate body has recognised the inconsistency of the minimum required domestic content levels prescribed by the Ontario FIT mechanism and GATT provisions.

Despite the CRE's unfavourable opinion, the government enacted the decree-law, including the EU bonus.

New decree-law

In September 2013 the European Commission ordered France to repeal the Decree-Law of January 7 2013 on the grounds that such FIT mechanism constituted an obstacle to the free movement of solar panels. Thus, on May 8 2014 the government adopted a new decree-law repealing the earlier decree-law, and consequently the domestic FIT bonus scheme.

Further, since it was repealed, the Decree-Law of January 7 2013 no longer has legal effect. However, projects that had already applied for the bonus will still be eligible to receive it. It can be surmised that the government preferred to repeal the decree-law rather than asking an administrative jurisdiction to annul it, since such decision would have retroactive effect.

However, pursuant to Article 1 of the decree-law:

"The provisions of the Decree of 7 January 2013 above shall continue to apply for eligible plants within the meaning of Article 1 of that Decree, for which producers have introduced a complete application for connection to the public network within the meaning of Article 4 of the Decree of 4 March 2011, aforementioned with the Manager of the public network to which the plant will be connected under the conditions laid down in that Article, before 10 March 2014."

Accordingly, electricity producers which submitted a complete application for connection to the network manager before March 10 2014 can still benefit from the increased tariff provided by the earlier decree-law.

Comment

The repeal of the EU bonus by the French government reflects the legal context of the national mechanism to promote electricity generated by renewable sources, which was marked by a lack of legal certainty and deeply influenced by globalisation.

The French FIT mechanism was repealed after less than one year – as were several other FIT mechanisms (ie, in relation to power generated by wind farms). This lack of certainty can be explained by the difficult balance which must be found between the willingness of national governments to promote renewable energy and the prohibition on undue intervention by public authorities, which may directly or indirectly distort or restrict competition.

The repeal of the EU bonus at the express request of the European Commission should be seen in conjunction with the anti-dumping measures taken by the European Union against China, which produces 70% of the world's solar panels. EU Regulation 748/2013 amending EU Regulation 513/2013, imposing a provisional anti-dumping duty on imports of crystalline silicon photovoltaic modules and key components (ie, cells and wafers) originating in or consigned from China,(1) implemented floor prices for cooperating exporting producers(2) representing about 70% of the Chinese solar panel producers.

All these measures, whether national or European, underline the strategic importance for states of the production of solar panels and related components. Therefore, the production of solar panels, and more broadly the establishment of energy infrastructure, requires complex technology resulting in the creation of jobs locally, making it a dynamic and attractive sector.

For further information on this topic please contact Robert Follie or Guillaume Mezache at Holman Fenwick Willan LLP by telephone (+33 1 44 94 40 50), fax (+33 1 42 65 46 25) or email (robert.follie@hfw.com or guillaume.mezache@hfw.com). The Holman Fenwick Willan LLP website can be accessed at www.hfw.com.

Endnotes

(1) See http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2013:209:0001:0011:EN:PDF.

(2) Article 7 – Annex 1 of EU Regulation 748/2013.