Introduction Green Electricity Act Biogas Technology Compensation Act Co-generation Points Act Comment

Introduction

Due to the steady decline in pricing in the electricity market, green energy projects have had no access to special promotion quotas. As a result, the waiting lists for renewable energy projects stretch beyond 2020 (eg, 2023 for small hydropower installations). Moreover, the time-limited and soon-to-expire feed-in tariff agreements for existing green energy plants are seen as problematic, since no satisfactory follow-up regulations (eg, successor tariffs) have been put in place. Although the long-awaited proposal to amend the Green Electricity Act was published on February 1 2017, those who expected it to expand renewable energy in Austria will be disappointed and must patiently await the envisaged expansive amendment to the act. That said, the amendment package has brought some hope for new investments.

The planned amendments will help to implement the federal government's 2017/2018 agenda.(1) In addition to the amendments to the Green Electricity Act 2012, the amendment package foresees the enactment of the Biogas Technology Compensation Act 2017 and a revised version of the Co-generation Points Act. Essentially, the Biogas Technology Compensation Act envisages financial compensation for inefficient biogas plants, as well as their withdrawal from the existing subsidies regime. The Co-generation Points Act aims to ensure the sustainable operation of all highly efficient co-generation plants.

Green Electricity Act

The cornerstones of the proposed amendments to the Green Electricity Act are as follows:

  • Newly concluded subsidy agreements contributed €19 million to the so-called 'remaining pot'. This amount will be reduced by €1 million annually until 2022. Thus, in 2017 the remaining pot is €14 million, which will be granted to wind, water and photovoltaic power plants which are unable to conclude a subsidy agreement with the Clearing House for Clean Electricity AG (OeMAG) because they have exhausted their additional annual support payment. According to the amendments, the remaining pot will be reduced by €1 million. These funds will be directly allocated to the sub-quota for small hydropower plants, thus increasing the support payment for small hydropower from €1.5 million to €2.5 million per year.
  • New biogas plants will no longer benefit from the new supporting regime. As a result, €10 million will be available for solid and liquid biomass.
  • Existing biogas plants which are highly efficient and predominantly operated on a thermal basis will receive a successor tariff from OeMAG. Notably, the proposed successor tariff is independent from the new supporting regime.
  • The expiration period for pending subsidy applications will be increased from three to four years. However, applications older than three years will not receive the more favourable tariff which applies at the time of application, but rather the last valid tariff.
  • Subsidies for photovoltaic plants will likely be awarded through a ranking system, rather than on a 'first come, first serve' basis. The detailed criteria will be set out in OeMAG's general terms and conditions. However, transferring legislative powers to OeMAG in this regard is questionable from a constitutional standpoint.
  • Following the amendments, the state governor will recognise only commodity dependent plants as green energy plants. OeMAG will examine all other plants to ascertain whether they meet the prerequisites to be considered green energy plants. For this purpose, the newly created Section 15a stipulates which technical documents must be attached to applications. Incomplete applications may be rejected, resulting in the respective power plant falling in the ranking system.

At first glance, small hydropower plants and existing biogas plants benefit the most from the proposed amendments to the Green Electricity Act. The extension of the application expiry period from three to four years could facilitate additional investments independent from the relevant technology. However, the fact that the most recent tariff will be imposed on applications older than three years will likely constitute a serious disadvantage.

Biogas Technology Compensation Act

This federal law aims to decommission biogas plants which cannot be modernised and are unprofitable by providing compensation for the costs associated with decommissioning the plant and, where necessary, lost feed-in tariffs. OeMAG must conclude compensation agreements with operators on application and reimburse costs which are eligible for compensation. However, operators must have valid off-take agreements. This prerequisite can pose a problem for older biogas plants, since the Co-generation Points Act must still be approved by the European Commission. The conclusion of compensation agreements is subject to the following prerequisites:

  • When an application is filed, the applicant must have a subsidy agreement (ie, an off-take agreement with OeMAG) valid for at least seven years.
  • The application must be made within the first 15 years of the plant's operation.
  • The application must include a precise list of the costs which are eligible for compensation and relate to the decommissioning. This list must be approved by an auditor.
  • The existing contract with OeMAG for green electricity must be irrevocably terminated.
  • The decommissioning of the plant must not be eligible for further subsidies. The operator of the plant must confirm this through an affidavit.

The following costs are eligible for compensation:

  • costs for dismantling the power plant and demolishing the structural facilities;
  • costs for terminating existing contracts and redeeming continuing obligations, especially in relation to personnel, insurance and the purchase of primary energy sources;
  • costs to obtain an auditor; and
  • costs for feed-in tariffs lost due to the premature termination of the subsidy agreement (deducting the market price at the time of compensation, pursuant to Section 41 of the Green Electricity Act 2012).

Importantly, these costs are compensated only to the extent that they are considered to be reasonable. Thus, operators should compare different offers in relation to the dismantling of the power plant and its demolition in order to prove to OeMAG that the costs are reasonable. In relation to contract-related termination costs, discussions with OeMAG are inevitable, as OeMAG is expected to view grossly unfair contractual clauses with regard to the premature termination of continuing obligations as contrary to market practice and will thus refuse to reimburse these costs.

In addition, OeMAG must reimburse only 50% of the decommissioning costs and lost feed-in tariffs – considering possible revenues resulting from the exploitation of the plant after concluding the compensation agreement – as long as proof that the plant is actually and ultimately decommissioned has been received. If proof is not submitted within one year of concluding the compensation agreement, the agreement will be terminated. Further, compensation for costs (except lost feed-in tariffs) will amount only to €1,500 per kilowatt bottleneck capacity. The maximum compensation for feed-in tariffs is 100% of the loss therein. Therefore, compensation claims are capped by law. Further, a maximum of €120 million will be made available for compensation. Once this amount is exhausted, reimbursement is no longer possible.

Co-generation Points Act

Co-generation plants are experiencing extreme economic pressure due to low market prices for electrical energy. The Co-generation Points Act aims to support co-generation plants by creating framework conditions that encourage the simultaneous production of environmentally friendly electrical energy and useful heat. However, only operators of highly efficient cogeneration plants which have been in operation since December 31 2014 and are feeding in thermal energy in public district heating networks will benefit. Co-generation plants which are predominantly used for the thermal self-sufficiency of companies and plants which produce energy and useful heat through waste treatment processes are exempt from this subsidy scheme. Further, congestion plants which are unable to meet the guidelines on state aid for rescuing and restructuring non-financial undertakings in difficulty are exempt.

End consumers will be responsible for providing the funds for these subsidies through the imposition of a flat rate for co-generation points. This flat rate will be charged by the network operator, together with the system use tariffs. The amount of the flat rate will depend on the network level at which the end consumer is connected to its plant.

Co-generation plants will receive subsides by concluding subsidy agreements. Subsidies in this regard are capped at €45 per megawatt hour (MWh). Subsidies will be calculated by subtracting the cap from the market price. In the event that the market price exceeds €45 per MWh, the grant will be excluded. The cap can be modified by an order from the federal minister of science, research and economy.

Comment

Larger investment incentives for renewable energy are unlikely based on the proposed amendments to the Green Electricity Act 2012. However, there are some advantages for small hydropower plants (eg, the increase in annual subsidies from €1.5 million to €2.5 million) and existing, highly efficient biogas plants (eg, the successor tariff). Wind power can also benefit from the planned extension of the expiry period for pending subsidy applications.

Inefficient biogas plants will be removed from the existing subsidy regime and plant operators will receive compensation for their decommissioned plants. Whether the costs which are eligible for compensation will be viewed as reasonable is a question that will need to be reviewed on a case-by-case basis.

Project developers whose plants fall under the purview of OeMAG, rather than the state governor, must exercise caution with regard to their access to subsidies. Incomplete documentation regarding a plant's "characterisation as a green electricity plant" can lead to a direct rejection of an application.

Finally, the envisaged Co-generation Points Act will certainly be hotly debated – in particular, as funds for additional subsidies for co-generation plants will need to be raised by end consumers.

For further information on this topic please contact Bernd Rajal at Schoenherr by telephone (+43 1 53 43 70) or email (b.rajal@schoenherr.eu). The Schoenherr website can be accessed at www.schoenherr.eu.

Endnotes

(1) Point 3.1 of the agenda, "Small Green Electricity Act Amendment".

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